The policies of the US President, Donald Trump, are causing more uncertainty for the economy than during the Covid pandemic, said the Vice President of the European Central Bank (ECB), Luis de Guindos, to the Sunday Times, as reported by Bloomberg.
”We must take into account the uncertainty of the current context, which is greater than during the pandemic. What we see is that the new American administration is not very open to continuing multilateralism, which is about cooperation between jurisdictions and finding common solutions to common problems. This is a very important change, and a significant source of uncertainty,” Guindos said.
In recent days, several officials within the ECB have expressed concern about the impact of the trade war, and the President of the institution, Christine Lagarde, warned that an escalation of disputes over trade tariffs could have a negative effect on the global economy.
Similarly, the Governor of the Bank of Spain, Jose Luis Escriva, who is also a member of the ECB’s Governing Council, stated on Friday that inflation and economic growth forecasts are subject to high risks in both directions, and such unpredictability makes it impossible to make predictions about the future direction of interest rates.
According to the ECB’s most recent forecasts, published this month, the eurozone economy is expected to grow by only 0.9% this year.
”Real wages have increased, inflation is decreasing, interest rates are falling, and financial conditions are better,” said Guindos. ‘However, the reality is that there is no rebound in consumption. This is because consumers do not always react to developments in their short-term disposable incomes. The possibility of a trade war or a broader geopolitical conflict impacts consumer confidence,” stated the ECB Vice President.
Asked about the plans for a significant increase in defense spending by European governments, Guindos mentioned: ''Certainly, this is a step in the right direction,'' even though it is too early to draw final economic conclusions. However, ''it may have a positive effect on growth and a limited impact on inflation,'' appreciated the ECB official.
Guindos reiterated the ECB officials' confidence that inflation is on track to reach the central bank's 2% target ''by the end of this year or the beginning of next year'' and added that ''all indicators related to services and core inflation are heading in the right direction.''