MNI BRIEF: Trump Poses Stagflation Risk For EZ -ECB's Schnabel
MNI (LONDON) - The primary impact of Donald Trump’s presidency on the euro area will “probably” be on growth, with financial markets already anticipating a stronger dollar and a weaker euro area economy, European Central Bank Executive Board member Isabel Schnabel said in an interview with Bloomberg on Wednesday. She noted that while it is still difficult to fully assess the effect of tariffs, they could contribute to higher inflation. (see MNI SOURCES: ECB Heads For 25BP Cut; Risks From Trump, Germany )
“Overall, if we look at what happened during the globalisation phase, it was net disinflationary. So I would expect that a partial reversal of this process should on net have an inflationary effect,” Schnabel said, acknowledging that the impact of tariffs is complex and could be partly mitigated by a shift in trade from China to the Eurozone.
Although the ECB is not prepared to shift to an accommodative stance, it could gradually move toward a neutral position if incoming data aligns with its baseline projections. Uncertainty, she added, necessitates a cautious approach. Still, she emphasised that “we’re now getting closer to neutral territory,” which she estimated to be between 2% and 3%. (see MNI SOURCES: ECB Closer To Dropping "Restrictive" Language )