THE global economy faces potentially detrimental shocks to growth and inflation if US President-elect Donald Trump implements the kind of import tariffs he threatened during his campaign, according to European Central Bank vice-president Luis de Guindos.
Economic output would be weaker, price pressures stronger and established trade flows disrupted, Guindos told an event on Wednesday (Nov 6) in London. The ECB will incorporate into its outlook whatever policies will be announced by the new administration and then decide how to react.
“If a jurisdiction as important as the US imposes tariffs of 60 per cent to any other important jurisdictions – let’s speak about China – I can assure you that the direct effects and the indirect effects and the deviations of commerce will be huge,” Guindos said.
Guindos is the first member of the ECB’s 26-strong Governing Council to speak after Trump was declared the winner of the US presidential election race. His peers have expressed similar warnings in previous weeks.
The ECB is approaching a crucial crossroads in setting monetary policy. Inflation has slowed faster than expected but so has the economy – and officials must now decide whether interest rates may have to lowered to a level that supports demand.
Guindos said policymakers will continue to be guided by data and look particularly closely at its bank lending survey to determine whether financing conditions are stimulative or restrictive.
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Projections due to be published next month won’t be very different from a set prepared in September, he said.
Guindos argued that it will take time to assess how trade policies under Trump will affect the economy.
“If you ask me, are you going to react immediately? – No,” he said. “What we will do is we will incorporate into our projections the trade policy that is announced by the new US administration. And we will take into consideration all the elements. Trade policy, plus the evolution of demand, plus the evolution of energy prices.”
Speaking at a separate event in London, Guindos said falling energy prices continued to drive euro-area inflation lower in October, adding that “the disinflationary process is well on track.”
He reiterated expectations that private consumption growth will pick up as rising wages, lower price pressures and improving confidence bolster demand. BLOOMBERG
