ECB’s Lagarde: Tariffs will be negative for global growth in the long-term

• Trump has indicated a range of tariffs around 10-20% for the rest of the world
• The fact that you put out a range means that you are open to discussion
• Europe is erring towards a “cheque book strategy”
• We could offer to buy certain things from the US and signal that we are prepared to discuss to see how we can reach a compromise
• This is a better scenario than a pure retaliation strategy where there is no real winner
• An all-out trade war would cause a negative drag on global GDP
• The actual net impact on inflation is still uncertain at this stage
• It is “extremely difficult” to assess the outlook as you may have a combination of a decline in GDP and potential depreciation or appreciation of the dollar
• Full transcript

The net impact of lower growth arguably means the ECB may have to move quicker and deeper in terms of cutting rates. However, that is also still subject to inflation developments in the coming year. As things stand, she’s not wrong in saying “we have to wait and see”.

This article was written by Justin Low at www.forexlive.com.