ECB’s Gindos warns of ‘huge’ impact of Trump tariff plans

The global economy will face potentially crippling shocks to growth and inflation if US President-elect Donald Trump imposes the import tariffs he threatened during his election campaign, European Central Bank Vice President Luis de Guindos said.

Economic output will be weaker, price pressures will increase and established trade flows will be disrupted, Gindos said at an event on Wednesday (6 November) in London. The ECB will include in its forecast any policies announced by the new administration and then decide how to respond to them.

“If a major jurisdiction like the United States were to impose 60 percent tariffs on any other major jurisdiction—let’s talk about China—I can assure you that the direct and indirect impacts and trade diversions would be enormous,” Guindos said. .

Guindos is the first member of the ECB’s 26-member Governing Council to speak since Trump was declared the winner of the US presidential election. His colleagues had voiced similar warnings in previous weeks.

The ECB is approaching a decisive crossroads in setting monetary policy. Inflation has slowed faster than expected, but so has the economy – and now policymakers must decide whether to cut interest rates to levels that support demand.

Gindos said policymakers will continue to be data-driven and will especially watch the bank lending survey to determine whether funding terms are supportive or restrictive.

BT in your mailbox

Start and end each day with the latest news and analysis delivered straight to your inbox.

According to him, the forecasts, which will be published next month, will not differ much from the forecasts prepared in September.

Gindos says it will take time to assess how Trump’s trade policies will affect the economy.

“If you ask me, will you respond immediately? “No,” he said. “What we will do is incorporate into our forecasts the trade policies announced by the new US administration. And we will take into account all the elements. Trade policy plus the evolution of demand plus the evolution of energy prices.”

Speaking at a separate event in London, Gindos said falling energy prices continued to help lower eurozone inflation in October, adding that “the process of disinflation is well underway.”

He reiterated expectations that private consumption growth will accelerate as rising wages, easing price pressures and improved confidence support demand. BLOOMBERG