US President Donald Trump’s policies are causing more uncertainty for the economy than there was during the COVID-19 pandemic, European Central Bank (ECB) Vice President Luis de Guindos told the Sunday Times.
“We need to consider the uncertainty of the current environment, which is even higher than it was during the pandemic,” he was cited as saying. “What we’re seeing is that the new US administration isn’t very open to continuing with multilateralism, which is about cooperation across jurisdictions and finding common solutions for common problems. This is a very important change, and a big source of uncertainty.”
Several ECB policymakers have highlighted their worry about the impact of a brewing trade war over the past few days with ECB President Christine Lagarde saying an escalation of disputes over trade levies might have a detrimental effect on the world economy.
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Similarly, Bank of Spain Governor Jose Luis Escriva on Friday told Bloomberg TV that assumptions for inflation and economic growth face big risks in each direction and that such unpredictability makes it impossible to predict further interest-rate moves.
In the euro area, growth is expected to expand just 0.9 percent this year, according to ECB forecasts published this month.
“Real wages have increased, inflation is declining, interest rates are coming down and financing conditions are better,” Guindos said. “But still, the reality is that consumption is not picking up.”
“This is because consumers don’t always react to developments in their short-term real disposable income,” he said. “They also consider what might happen with the economy over the medium term, which is clouded in uncertainty. The possibility of a trade war or wider geopolitical conflict has an impact on consumer confidence.”
Asked about the massive defense spending plans from European governments, Guindos said “this is certainly a decision in the right direction,” though it is too early to draw definite economic conclusions.
Still, “it will likely be positive for growth and have a limited impact on inflation,” he said.
Guindos reiterated the ECB’s confidence that inflation is on track toward the central bank’s 2 percent goal at “the end of this year or the beginning of next,” saying that “all indicators for services and underlying inflation are moving in the right direction.”
He particularly highlighted the slowdown in compensation per employee, which eased in the fourth quarter.
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