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Tuesday November 20th, 2018 6:41AM
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Trade war fears a clear concern of European bank officials

By The Associated Press
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FRANKFURT, Germany (AP) — Top officials at the European Central Bank expressed confidence at their last policy meeting that the eurozone economy remains "broadly on track" but expressed concern that rising trade protectionism could dampen business confidence and blunt the recovery.

The assessment was contained in the written account of the bank's June 14 policy meeting in Riga, Latvia, which was published Thursday. At that meeting, policymakers decided the 19-country eurozone economy was strong enough to phase out their 2.4 trillion-euro ($2.8 trillion) bond-purchase stimulus at year-end. 

One clear concern voiced by officials related to the impact of a global trade, following the announcement by U.S. President Donald Trump of tariffs on steel and aluminum imports, including from the European Union. Trump subsequently imposed tariffs on a range of Chinese goods. The U.S. tariffs, so far, have already prompted the European Union to respond by slapping an equivalent amount of tariffs on U.S. products including bourbon whiskey, Levi's jeans and Harley-Davidson motorbikes. Further tit-for-tat measures, could be on the horizon — and could harm producers on both sides.

ECB officials said the direct impact of new tariffs was "ambiguous and uncertain" but warned that "such tensions could lead to a more general decline in confidence throughout the economy."

Earlier, the European Union's executive arm downgraded its economic growth forecasts amid fears of a global trade war.

In an update of its forecasts, the European Commission said growth across the EU will be 2.1 percent this year, down from its previous forecast a couple of months ago of 2.3 percent. It also reduced its forecast for the eurozone to 2.1 percent from 2.3 percent.

"The slight downward revision compared to the spring reflects the impact on confidence of trade tensions and policy uncertainty, as well as rising energy prices," said Pierre Moscovici, the Commission's top economy official.

"Our forecast is for a continued expansion in 2018 and 2019, although a further escalation of protectionist measures is a clear downside risk."

Trade wars, he added, "produce no winners, only casualties."

ECB officials felt that a recent moderation in growth didn't signal the end of the recovery. Instead it was more likely a "levelling off" of growth to more normal levels after a period of unusual strength.

At their most recent meeting, the council decided to cut monthly bond purchase to 15 billion euros per month through December and then bring them to an end. The purchases pumped newly printed money into the economy in an effort to raise inflation toward the bank's goal of just below 2 percent. Though the headline rate was 2 percent in the year to June, the core rate, which strips out volatile items such as food and energy, is only 1 percent, a clear signal that underlying inflationary pressures through such things as wages, remain muted.

The ECB made it clear that it would continue to provide stimulus by keeping interest rate benchmarks at record lows at least through summer 2019. The short-term benchmark is zero and the rate on money deposited by banks at the ECB is minus 0.4 percent, a penalty aimed at pushing the bank to lend the money rather than keep it at the ECB.

  • Associated Categories: Associated Press (AP), AP Business, AP Business - Economy, AP Business - Industries, AP Business - Financial Services
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