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ECB sees Donald Trump administration as key risk to global economy

LiveMint logoLiveMint 21-06-2017 Paul Gordon

Frankfurt: The European Central Bank cited the government of US President Donald Trump as a key reason why the risks to the global economy remain tilted to the downside.

The Frankfurt-based ECB said in an article from its Economic Bulletin on Wednesday that while some concerns over the prospects for world growth have diminished, such as China’s short-term outlook and the resilience of emerging-market economies, others have appeared.

“Since the US election, pressures for more inward-looking policies have risen,” it said. “In particular, there is significant policy uncertainty surrounding the intentions of the new US administration regarding fiscal and, especially, trade policies, the latter entailing potentially significant negative effects on the global economy.”

The ECB said an index of geopolitical tensions, which captures incidents of war, political tension and terrorist attacks, was broadly stable between early 2016 and the start of 2017. It also said that the impact of the UK’s vote to leave the European Union has been more benign than initially expected but medium-term risks remain over the outcome of Brexit negotiations.

In what might be taken as a nod to its own monetary-policy deliberations, the central bank welcomed the US Federal Reserve’s “careful communication” and “very gradual” path of normalization, saying it has lessened the likelihood of a disorderly tightening of global financial conditions.

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The ECB is preparing to discuss how and when to wind down its 2.3 trillion ($2.6 trillion-euro) bond-buying programme, which is currently scheduled to run until the end of this year. Policy makers haven’t yet had formal talks on the topic, instead expressing concern that the euro-area economic recovery isn’t being accompanied by a pickup in underlying inflation and wage growth.Bloomberg

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