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ECB: Trade peace would remove big drag on eurozone growth

By DAVID McHUGHJanuary 28, 2019
President of European Central Bank Mario Draghi talks to the media during a press conference following the meeting of the ECB governing council in Frankfurt, Germany,Thursday, Jan.24, 2019. (Arne Dedert/dpa via AP)
President of European Central Bank Mario Draghi talks to the media during a press conference following the meeting of the ECB governing council in Frankfurt, Germany,Thursday, Jan.24, 2019. (Arne Dedert/dpa via AP)

FRANKFURT, Germany (AP) — With gloom spreading over the economy of the 19 countries that use the euro, European Central Bank head Mario Draghi said Monday that much of the drag on growth would ease if “clarity and peace” were to break out in the trade dispute between the U.S. and China.

Draghi said that “the key factor that we have to look at is the persistence of all these various causes, various geopolitical factors,” such as uncertainty about tariffs and whether Britain will leave the European Union without a negotiated deal.

He said during a question and answer session in the European Parliament that many members of the bank’s governing council expressed the view during their meeting Thursday “that if there were all of a sudden clarity and peace in trade relations between the U.S. and China, much of the slowdown would probably wash out.”

The eurozone’s impetus from trade has sagged, even as domestic demand is helped by falling unemployment and rising wage.

U.S. and Chinese officials are to meet this week for trade talks that could stave off further hikes in punitive tariffs imposed by both sides.

Draghi said issues clouding the outlook were anxiety about Brexit and the slowdown in China, though Draghi added that the ECB was confident that the Chinese government was “taking appropriate actions there.”

Economic growth in Europe slowed in the last half of 2018 and indicators at the start of this year have been weak against the background of concerns about slackening global trade and unsettling swings in stock prices. The weak patch comes just after the ECB ended a nearly four-year stimulus program involving the purchase of 2.6 trillion euros ($3.0 trillion) in government and corporate bonds with newly created money, and with one of the bank’s key interest rate benchmarks below zero, at minus 0.4 percent. The eurozone grew 0.2 percent in the third quarter over the quarter before.

Last week Draghi shifted the central bank’s outlook to say that risks to the economy “have moved to the downside.”

Draghi said that the bank still had steps it could take if necessary to respond to a worsening in the economy: “We have instruments and in fact these instruments have already started acting.”

He mentioned the bank’s promise not to raise interest rates at least through the summer and to then keep reinvesting maturing bonds from the earlier purchases for an extended period of time after that, which puts off the withdrawal of that stimulus program.

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