Trade war prompts ECB fears of longer slowdown

[FRANKFURT] European Central Bank policymakers' view of the economic outlook clouded as trade conflicts slowed the world economy, prompting fears of a longer eurozone soft patch, an account of their January meeting showed Thursday.

"There were concerns among members about an increasing impact of trade protectionism, and an escalation of trade conflicts, on the global outlook," according to the record.

Since January, there have been signs the United States' trade battle with China could be nearing a truce, but the threat of American tariffs on European car imports - and a tough response from Brussels - has grown in recent days.

Meanwhile International Monetary Fund chief Christine Lagarde warned this month of a "storm" lowering over a global "economy that is growing more slowly than we had anticipated."

In the eurozone, "the observed slowdown... appeared to be deeper and more broad-based than previously anticipated," ECB governing council members said.

The committee was "unanimous about acknowledging the weaker momentum and changing the balance of risk for growth" to negative, ECB President Mario Draghi said following the meeting.

Since ending new purchases of government and corporate bonds in December, the ECB has limited room to intervene in the eurozone economy.

Members agreed the 2.6-trillion-euro (SS$3.9 trillion) scheme, designed to pump cash through the financial system and into the real economy of firms and households, had served its purpose of lifting growth and avoiding deflation.

But at 1.4 per cent in January, price growth remains short of the ECB target of just below 2.0 per cent.

And earlier growth-boosting moves by the central bank have left interest rates stuck at historic lows at least until summer this year.

Next month's meeting could see the ECB drop heavier hints about its next steps, armed with new staff forecasts for growth and inflation.

Board member Benoit Couere said on Friday policymakers could ponder a new round of long-term, low-interest loans to banks known as TLTROs, as previous waves approach maturity.

Such cash influxes were used by the ECB to encourage growth in the wake of the financial crisis.

However, "the situation in the eurozone does not look severe enough yet for the ECB to announce any quick policy changes" next month, ING bank economist Carsten Brzeski commented.

Elsewhere in the account, members highlighted domestic strength in the bloc counterbalancing external risks, with rising employment and wages favouring further growth and a pickup in inflation.

AFP