ECB's Coeure Warns Trade Wars Raise Burden on Central Banks

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(Bloomberg) -- European Central Bank Executive Board member Benoit Coeure said the trade spat picked by the U.S. risks increasing the burden on central banks -- as well as hurting the poor -- by dimming global growth prospects.

Protectionist sentiment has already “contributed to tighter financial conditions,” Coeure said on Friday at the Ambrosetti Forum in Cernobbio, Italy. “A ‘trade war’ scenario would add to global uncertainty at a time when some central banks have only just begun the process of unwinding the unconventional policy measures put in place following the global financial crisis.”

The ECB, which is currently considering when to halt its bond-buying program, has repeatedly warned that any unwarranted tightening of markets could delay its exit from stimulus. Coeure later said in a CNBC interview that the ECB can for now look past the market impact of the trade spat as “it all comes against the backdrop of a very strong growth momentum.”

The robust expansion and a recent uptick in inflation are fodder for discussions within the ECB’s Governing Council about adjusting the current mix of monetary-policy instruments, he added.

Still, that conversation is likely to be complicated by recent economic data from industrial output to retail sales that failed to meet economists’ estimates. The ECB next meets to set policy on April 26.

“The ECB will still be slow and, with the softer data recently, the probability has increased of ECB coming later than currently expected with the next change in forward guidance,” said Piet Christiansen, an economist at Danske Bank A/S in Copenhagen. “We expect the next change in June to include an end-date to the purchases.”

Heightened Risks

Coeure’s comments come amid escalating risks of a full-fledged trade war between the U.S. and China. The Asian nation said it would counter U.S. protectionism “at any cost” after President Donald Trump on Thursday ordered his administration to consider tariffs on an additional $100 billion in Chinese goods. Trump cited “China’s unfair retaliation” in response to his list of proposed tariffs earlier this week covering $50 billion in the country’s products.

The ECB does not want to see “a total tightening of financial conditions” in response to the conflict, Coeure said.

  • Read about China’s pledge fight to U.S. tariffs “to the end
  • Bloomberg Economics on cheap talk and expensive trade wars
  • The timeline of the escalating dispute
  • What happened in the world economy this week and what it means

In his speech, the ECB board member also stressed that protectionism isn’t the right answer to the challenges of globalization. He called on economists and policy makers for proposals aimed at helping those who haven’t been reached by the benefits of open global trade.

Inward policies “will only fuel more inequality” and “exacerbate economic hardship for the poorest in society,” as well as “breed distrust among nations, making for a more unstable international order,” Coeure said. “There are no winners in trade wars, just different degrees of losers.”

©2018 Bloomberg L.P.

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