The European Central Bank’s interest rates have room to drop further as inflation eases, said ECB board member Piero Cipollone, warning that the US-China trade war could have a harmful impact on the eurozone.
“We all agree that there is still room to adjust rates downward,” he told Reuters. “We are almost at target… (and) we are still in restrictive territory.”
A major uncertainty is US trade policy, which could hit Europe hard, even before any direct trade barriers are imposed on the bloc, Cipollone argued.
“What worries me most is if President Trump engages in a full-scale trade war with China,” Cipollone added. “This is a more serious threat because China holds 35% of the world’s production capacity.”
The US imposed a 10% tariff on all Chinese imports this week, prompting retaliatory measures from Beijing.
According to Cipollone, limiting access to the US would force China to find other markets and could flood Europe with discounted products, potentially slowing growth and prices.
However, Cipollone seems to minimize the impact of potential tariffs directed at Europe. He said companies might absorb some of the higher costs by sacrificing profit margins, while the inevitable weakening of the euro against the US dollar would also help cushion the bloc.
Trade disputes could drag on economic growth, but not enough to trigger a recession, especially as other parts of the economy show resilience.
“We may not be thriving, but I’m not expecting a recession at all,” he said.
