Europe hurt by US trade threats, central bank says
Frankfurt, Germany – The head of the European Central Bank warned that global friction over trade – such as U.S. threats to impose more tariffs – is holding back the economy and underlined the bank’s readiness to deploy more stimulus if needed.
Mario Draghi said Wednesday that an improving jobs market and rising wages were helping the economy in the 19 countries that use the euro but uncertainties like trade disputes and Brexit are hurting it.
“Global headwinds continue to weigh on euro area growth,” he told a news conference after the central bank kept its key interest rates and policy promises on hold.
Draghi was speaking hours after U.S. President Donald Trump threatened to pile tariffs on another $11 billion worth of goods from the European Union, ratcheting up tensions as the two sides negotiate trade terms.
“The fact that these threats are being voiced with some frequency is certainly undermining confidence,” Draghi said.
The 19-country eurozone, which relies heavily on exports, has also suffered from uncertainty created by a separate U.S. dispute with China over trade. Trump has targeted countries that sell more to the U.S. than they buy, saying he is protecting American companies and jobs.
Yet the trade disputes have unsettled the global economy. The International Monetary Fund on Tuesday cut its growth outlook for this year to 3.3% from 3.5% and its chief economist said the global economy was at “a delicate moment.”
Britain’s looming departure from the EU - with leaders meeting Wednesday to discuss proposals for a delay - has further created concerns about new barriers to trade in Europe.
The eurozone economy has sagged under the pressure of the uncertainty stemming from those ongoing concerns. One-off factors have also hurt activity, including troubles in the auto industry.
The European Commission forecasts eurozone growth of 1.3% for all of 2019, from 1.8% last year. Unemployment is down to 7.8% from a peak of 12.1% in 2013, helping domestic demand for goods and services.
Draghi said that the ECB, the chief monetary authority for the European Union member countries that use the euro currency, was ready to use all its policies to help the economy, should it be needed.
The ECB, which only at the end of 2018 wrapped up a major monetary stimulus program, has had to shift its stance and offer the economy more help. In March it extended the date for the earliest interest rate increase to the end of the year. It also promised a new round of cheap loans to banks to help them lend to business and support growth.
The ECB has joined the U.S. Federal Reserve in pausing the withdrawal of stimulus measures deployed over a decade to bounce back from the global financial crisis, as central bankers around the world ponder which way the economy is headed. The Fed has already started raising rates but has backed off plans for further rate increases in 2019.