BRUSSELS (Reuters) – A trade war with the United States could have a fleeting impact on euro zone inflation but a far more detrimental effect on economic growth, European Central Bank Vice President Luis de Guindos said on Thursday.
The euro zone’s growth has been stagnating just above zero for the past two years and there is little sign of any meaningful recovery, even if the risk of a recession seems to have declined.
“We believe that it will have a short-lived impact on inflation, but for growth, a trade war will be extremely detrimental,” de Guindos told a financial conference.
The U.S. has already announced a raft of trade measures impacting imports of metals and cars, and threatened further steps after U.S. President Donald Trump claimed the European Union was created “to screw” the United States.
De Guindos said he was optimistic about inflation, and the price increases caused by tariffs and countermeasures would be offset by the drag from lower growth.
Echoing his comments, French central bank chief Francois Villeroy de Galhau said the U.S. might lose more than others from a trade war.
“The global economy is not a zero sum game,” he told the same conference. “Trade is about creating value together… if we stop, it’s a lose-lose game; everybody will lose, starting with the U.S.”
This environment of uncertainty make it necessary for the ECB to change policy with extra caution and prudence, de Guindos said.
A raft of policymakers, including ECB board member Piero Cipollone, Greece’s Yannis Stournaras and France’s Villeroy have already made the case for more interest rate cuts.
But de Guindos took a more cautious stance with three weeks to go until the next rate meeting.
“When you are in a very dark room with a lot of uncertainty, you have to take cautious steps… you have to be very prudent,” he said. “Our approach of data dependency, and a meeting by meeting approach, is the correct one.”
The ECB will next meet on April 17 and markets see a roughly 70% chance of another rate cut, the bank’s seventh since last June.
(Reporting by Balazs Koranyi; Editing by Peter Graff)
