On Monday, the ECB vice-president, Vitor Constancio said that financial markets are pricing in more economic growth since Donald Trump’s victory. The ECB Warning on Trump Policy risks, included that U.S. protectionism and domestic political risks could hurt Europe.
14 November, AtoZForex – Investors are expecting Trump’s administration to cut taxes and spend more to boost growth and inflation, that’s why U.S and European shares are rising and bonds prices are falling. Vitor Constancio, ECB vice-president stressed that Trump’s guarantee to put America first could be hurtful to the European and emerging markets’ exports, while fuel the political risks. Consequently, this could spark to the rise of nationalism and increase the popularity of theeurosceptic parties in Eurozone countries.
Donald Trump’s policy could hurt the EU
Vitor Constancio has made the prediction that the Eurozone’s economy would keep on recovering and pushing inflation by next spring above the 1 percent, in comparison with the 0.5 percent now. He repeated this prediction, but he projected according to “the potential negative effects of the present worldwide uncertainty”. Which was included in his warning along with calls to support growth by more expansionary economic policies. Vitor Constancio stated further:
“Indeed, a range of political risks may induce economic shocks.”
The timing of Donald Trump’s election as the 45th US president is not beneficial for the ECB. Considering that it is a delicate period for Constancio and his counterparts on the governing council of the ECB, especially ahead the important vote in December 8. In this meeting they will be under pressure to determine what will be the fate of the ECB QE program after March. The markets are curious if the ECB would extend its QE at the current speed of 80 billion Euros a month and also if they will continue after March.
What is the ECB going to do?
The ECB said that it will buy bonds only until March 2017. Frederik Ducrozet, an economist at Pictet Wealth Management said that Vitor Constancio’s warning and comments are important, and validating the possibility of extension of QE after March at the current speed of 80 billion Euros a month.
He added that ECB seems to have no choice, but to stay flexible at the meeting which will be held in December.
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