BRUSSELS: Europe's economy could face a significant slowdown in growth and further inflation if Donald Trump is re-elected, US President and European Central Bank (ECB) Governing Council member Joachim Nagel has warned. There is.
Germany's Bundesbank chief said a Trump victory “could be accompanied by significant tariff increases, expansionary monetary policy and tough immigration restrictions.”
“If implemented, this could result in significant losses to growth in the euro area and Germany.”
“In this scenario, a sharp change in U.S. economic policy could also pose inflation risks for the euro area and Germany,” Nagel said, speaking at the German central bank's annual reception in Berlin. .
The comments come less than a month before Americans vote and reflect widespread alarm in Europe about Mr Trump's prospects for a second term if he defeats his rival, current Vice President Kamala Harris. There is.
ECB President Christine Lagarde has already expressed concerns about his possible return to power.
President Trump has, among other things, promised to impose tariffs of 60% on China and up to 20% on other countries, the largest trade tariffs since the Smoot-Hawley Act that deepened the Great Depression in the 1930s. I'm in shock.
The eurozone economy is struggling due to the impact of Germany, which is already in recession, and could slip into a second consecutive year of negative growth in 2024.
“It seems likely that the negative effects of large tariff increases and perhaps counter-tariffs could have a stronger impact on the U.S. economy than monetary stimulus,” Nagel said.
German officials say U.S. inflation could also rise significantly because the tariffs would make imports more expensive.
“This could lead to the U.S. central bank raising interest rates,” he said.
The euro area and Germany could be negatively affected if tariff increases directly or indirectly affect export industries. Additionally, increased uncertainty “could make companies more likely to hold back on investments,” Nagel said.
He warned that the impact on economic growth could be greater for Germany because of its close trade relationship with the United States.
Regarding inflation, the main channel will be the exchange rate, he said.
“Given price developments, if the Federal Reserve had to react more strongly than the ECB Governing Council to a spike in US inflation by raising interest rates, we would expect a devaluation of the euro and therefore an increase in import prices. '' Nagel said.
“Compared to President Trump's policies, Ms. Harris' proposal will likely have manageable macroeconomic effects and spillovers,” he said. — Bloomberg
