FRANKFURT (Reuters) – Euro zone economic growth could fall much more from the impact of U.S. trade tariffs than initially estimated by the European Central Bank and the turmoil could also drag inflation down in the near term, four sources told Reuters.
The ECB last month predicted that a trade war would take 0.5 percentage points off the euro zone’s economic growth in the first year and would briefly send prices up by a similar magnitude if the European Union retaliated.
But the actual tariffs unveiled by U.S. President Donald Trump since then are far more detrimental than models estimated and staff have been asked to come up with fresh numbers, to be discussed by policymakers at their April 17 meeting, the sources, all with direct knowledge of the situation, said.
All agreed that the 0.5 percentage points estimate is too low now and one of them said the impact could be in excess of 1 percentage points – also due to the increase in uncertainty and the hit to confidence. This would wipe out all economic growth since the bloc is only seen expanding by about 1% this year.
An ECB spokesperson declined to comment.
Such sluggish economic activity was likely to act as a drag on prices, the sources said. But some argued that greater fragmentation in global trade may result in structurally higher inflation further out.
(Reporting By Balazs Koranyi and Francesco Canepa; editing by Mark John)
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