AFP, Frankfurt Am main :
Global markets face rising instability due to political uncertainty after the election of Donald Trump and with polls next year in key European countries, the European Central Bank warned Thursday.
“Risks of global asset market corrections have intensified, partially due to political uncertainty and expected US policy changes,” the ECB said in its biannual Financial Stability Review.
Trump’s shock poll victory raises pressing questions about the direction of US economic policy, particularly given his critical stance on free trade deals, the bank said.
“No one can be certain about the degree of changes in policies in the US,” ECB vice president Vitor Constancio told reporters.
“If we would see a round of protectionism, that will trigger reactions in other countries which then would take counter measures and that’s very risky of course in a situation where world trade is already very weak.”
The bank warned that the 19-country eurozone could be particularly vulnerable to such effects.
“The euro area economy may be directly impacted via trade channels and by possible spillover effects from higher interest and inflation rate expectations in the US,” it said.
The ECB also noted the “heightened political uncertainty in advanced economies”, referring to Germany and France which both face national elections next year.
“Higher political uncertainty may lead to more domestically focused, growth-hindering policy agendas,” it said.
“This, in turn, could delay much needed fiscal and structural reforms and could in a worst-case scenario reignite pressures on more vulnerable” countries such as the heavily indebted countries of the eurozone periphery.
However it noted that the euro area had shown “resilience in the face of repeated bouts of financial market turbulence over the past six months,” since the publication of its last report.
Global markets face rising instability due to political uncertainty after the election of Donald Trump and with polls next year in key European countries, the European Central Bank warned Thursday.
“Risks of global asset market corrections have intensified, partially due to political uncertainty and expected US policy changes,” the ECB said in its biannual Financial Stability Review.
Trump’s shock poll victory raises pressing questions about the direction of US economic policy, particularly given his critical stance on free trade deals, the bank said.
“No one can be certain about the degree of changes in policies in the US,” ECB vice president Vitor Constancio told reporters.
“If we would see a round of protectionism, that will trigger reactions in other countries which then would take counter measures and that’s very risky of course in a situation where world trade is already very weak.”
The bank warned that the 19-country eurozone could be particularly vulnerable to such effects.
“The euro area economy may be directly impacted via trade channels and by possible spillover effects from higher interest and inflation rate expectations in the US,” it said.
The ECB also noted the “heightened political uncertainty in advanced economies”, referring to Germany and France which both face national elections next year.
“Higher political uncertainty may lead to more domestically focused, growth-hindering policy agendas,” it said.
“This, in turn, could delay much needed fiscal and structural reforms and could in a worst-case scenario reignite pressures on more vulnerable” countries such as the heavily indebted countries of the eurozone periphery.
However it noted that the euro area had shown “resilience in the face of repeated bouts of financial market turbulence over the past six months,” since the publication of its last report.
