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ECB President Christine Lagarde has warned that rising trade restrictions could drag inflation back to life and hit the global economy hard. Speaking at the IMF’s annual meetings, Lagarde made it clear that international cooperation isn’t just a “nice-to-have.” She believes it’s “crucial” if we want global growth to stay on track. “Legitimate concerns about security and supply chain resilience can’t push us toward a spiral of protectionism,” Lagarde said. She added that more trade barriers could make everything pricier by jacking up costs for businesses that rely on imported materials and narrowing the pool of suppliers. This, she pointed out, would tie the hands of central banks when trying to manage inflation. Global trade barriers have been quietly stacking up over the past decade, fueled by growing mistrust. Major economies aren’t too eager to lean on one another for critical goods like semiconductors, especially from countries with tense diplomatic ties. And since Russia’s invasion of Ukraine, the world has only seen more of these issues pile up. The ECB’s economists have calculated that if countries start throwing up barriers around “strategic products,” we could be looking at a GDP loss equivalent to 6% globally. In a worst-case scenario (full-on decoupling) they estimate that figure would skyrocket to a 9% GDP loss. Lagarde’s timing on this warning is no coincidence either. With the U.S. elections just days away, Donald Trump is back on the campaign trail, pushing for more tariffs against China and other nations. If he wins, the eurozone’s already weak domestic demand could take a bigger hit, especially if tariffs slam its exports to the U.S. next year. ECB faces tough choices on interest rates Under Lagarde, has been wrestling with inflation. In October, they pulled a bold move: back-to-back rate cuts for the first time in 13…

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Filed under: News - @ October 26, 2024 9:19 pm