Weaker eurozone growth due to trade tensions.

The eurozone’s weaker economic performance over the past few months has partly been triggered by rising trade tensions, according to the head of its central bank.

Mario Draghi, the central banker for the currency bloc, said that recent soft data across a broad range of sectors had been triggered by trade skirmishes.

The moves to slap tariffs on a wide range of goods by the US, which include a soon to expire exemption for the EU on steel and aluminium, may well have shaken optimism among consumers and businesses.

Prior to the EU exemption being granted, it promised to retaliate against the taxes on steel and aluminium with fees levied on sensitive US goods including Levi’s jeans and Kentucky whiskey.

Mr Draghi said: “These events have a profound and rapid effect on confidence. Confidence in turn can affect the long term outlook.”

Other factors that could also have caused a sudden weakening in performance across sectors included the weather, strikes and the timing of Easter, Mr Draghi said.

As a result of softer data, Mr Draghi said he had “caution [about the eurozone economy] tempered by an unchanged confidence in the convergence of inflation to our inflation aim”.

Inflation would “hover” at around 1.5pc “for the remainder of the year”, Mr Draghi added. This is well under the target of close to but below 2pc.

The president also suggested that the focus of the ECB governing council was on the most recent data rather than revising current forward guidance on monetary policy.

The bank’s quantitative easing (QE) programme, in which it currently buys €30bn (£26bn) a month of eurozone bonds, is set to end in September this year. However, frequent suggestions of underlying weak inflation have called that timeline into question.

Only two more meetings remain before September. Therefore, the window in which to provide clear signals to the markets of the ECB expected change to forward guidance and policy is increasingly narrow.

Robert Sierra, of Fitch Ratings said: “Along with the recent flat core inflation numbers and Draghi’s emphasis in the press conference on the impact of the stronger euro on inflation, the ECB’s tone has become slightly more dovish.”

Claus Vistesen of Pantheon Macroeconomics said Draghi’s statement about a focus on recent data “could be interpreted as a sign that the central bank is making the incoming [three months to June] data conditional on how it intends to proceed with QE”.

If that is the case, it is “a dangerous position to be in”, Mr Vistesen said.

Source: www.telegraph.co.uk

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