The European Central Bank said the risks to the world's economy from a widespread rise in protectionism could be 'significant.'
The Frankfurt-based institution warned in its Economic Bulletin on Thursday that global growth -- already forecast to slow as many advanced economies approach capacity constraints -- might take an additional hit from recent threats to trade.
“The balance of risks for global activity and trade in the short term has worsened recently, with risks remaining skewed to the downside in the medium term,” the ECB said. “The implementation of higher trade tariffs and the possibility of wider protectionist measures represent a key risk.”
The U.S. imposition of import tariffs on aluminum and steel from countries including European Union nations has led to retaliatory measures and heated rhetoric that the ECB worries will hit business and consumer confidence. China is embroiled in a trade battle with President Donald Trump’s administration, and is opposing curbs on investment in the U.S.
For the euro area, such political tensions come amid a spate of downbeat economic data. A research report in the bulletin suggested the relative weakness comes from both temporary and cyclical factors, including a slowdown from the decade-high expansion of 2017, but might also include trade concerns.
“Indicators of global trade growth point to a modest deceleration in the first months of this year,” the report showed. “This probably reflects a temporary decline in foreign demand and lagged effects of the euro appreciation in 2017, but it cannot be excluded that part of this decline was also driven by a deterioration in expectations resulting from the ongoing tariff discussions.”
The report also said the euro-area’s expansion since 2013 is unexceptional in length and strength, meaning it could have some way still to run. One driver could be investment, which has only recently recovered to levels seen before the financial crisis.