ECB Says Investment Most Vulnerable to Global Uncertainty

(Bloomberg) -- Weaker global growth and trade protectionism could start to gnaw on company investment in the euro area, according to the European Central Bank.

“Increasing uncertainties at the global level constitute a downside risk to the outlook, particularly for business investment,” according to an article to be published in the ECB’s bulletin. Malin Andersson and Benjamin Mosk argue there’s less concern about private consumption because “data suggest that labor income growth can be expected to continue to support household spending, despite possible adverse impacts from global trade uncertainty.”

ECB Says Investment Most Vulnerable to Global Uncertainty

President Mario Draghi said last month that risks to the economic outlook have moved to the downside amid an unresolved tariff spat between the U.S. and China, slowing momentum around the world and the threat of Britain’s potentially disruptive exit from the European Union. Since then, data have confirmed that Italy slipped into a recession, French consumer spending ground to a halt as violent protests roiled the country and business sentiment in the 19-nation region extended its worst losing streak in a decade.

There are signs growth is “increasingly supported by structural factors as well as cyclical ones, despite some vulnerabilities,” the researchers wrote. A reduction of macroeconomic imbalances and structural reforms have strengthened the euro area’s resilience, making monetary policy more effective.

“This should also reduce adverse repercussions of idiosyncratic shocks in euro-area countries,” according to the report, which adds that potential vulnerabilities stem from high public and private debts, non-performing loans and low household savings.

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