As the European Central Bank (ECB) cuts interest rates for the third time this year, Christine Lagarde has warned that a second Trump presidency could pose risks to the euro zone economy.
While announcing cuts to borrowing costs, the ECB president warned of potential “downside” risks if Donald Trump wins the US presidential election in November. Today, ECB policymakers cut deposit rates from 3.5% to 3.25%, citing “recent expected downturns” in economic activity in the euro area.
Germany, Europe's largest economy, is now facing its second straight recession for the first time in 20 years, according to recent government forecasts.
The ECB's rate cut comes after President Trump announced plans to impose tariffs on non-U.S. products if he returns to office. In response, the European Union created a list of U.S. products that could be subject to tariffs, according to Bloomberg. The preparations came after the EU was caught off guard by President Trump's tariffs on steel and aluminum exports in 2018.
When asked how Trump's possible return to the White House and tariff plans would affect eurozone growth and inflation, Lagarde emphasized the importance of trade, saying, “Trade is an important part of economic activity.'' “Trade is an important driver of economic activity.” Any restrictions, uncertainties and obstacles to trade are significant for an open economy like Europe, which relies heavily on both domestic and global trade. ”
He added: “An increase in trade barriers, tariffs, or other obstacles that limit the ability to trade globally poses a clear downside risk.”
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