August 23, 2018 / 11:38 AM / a month ago

ECB minutes point to worries about trade war, protectionism

FRANKFURT (Reuters) - Protectionism and the threat of a global trade war are the biggest risks to the euro zone economy but growth for now remains firmly on the path seen earlier, European Central Bank policymakers concluded last month.

FILE PHOTO: Shipping containers are seen at a port in Shanghai, China July 10, 2018. REUTERS/Aly Song/File Photo

In a meeting with few if any disagreements, rate setters shared the view that the bloc was performing as expected so no tweak to policy was needed, the minutes of the July 26 meeting showed on Thursday.

The ECB agreed in June to end lavish bond buys by the close of the year and to keep rates steady at least through next summer, giving markets unusually long notice for its likely policy moves.

“Uncertainties related to global factors remained prominent, in particular with regard to the threat of protectionism and the risk of an escalation of trade tensions,” the minutes showed.

“Tensions could generate a more general decline in confidence throughout the global economy, beyond any directs effects from the imposition of tariffs,” the ECB added.

While the risk of a trade war is already weighing on sentiment, the actual impact on growth has so far been muted and ECB policymaker said they even expect the first half’s growth slowdown to be temporary.

The euro zone is enjoying its sixth year of expansion, record high employment and solid prospects as growth is now fueled by domestic consumption, including on the bloc’s periphery.

Even inflation is on the rise, though policymakers disagree whether a 1.7 percent rate projected for the next three years is in line or below the ECB’s target price growth close to but below 2 percent.

“Members broadly shared the view that uncertainties surrounding the inflation outlook had been receding,” the ECB said.

Followed by one of the shortest ECB press conferences on record, the meeting did not consider any policy alternatives and rate setters unanimously agreed to reconfirm the current stance.

“It was considered essential to regain sufficient flexibility and optionality for monetary policy,” the ECB said. “It was considered prudent to restate the Governing Council’s readiness to adjust all of its instruments, as appropriate.”

With a policy path laid down for the next year, the ECB has few big decisions coming up. Still, it will have to make a formal decision, possibly in September or October, to end the bond buys as its decision has so far been described as an expectation.

Reporting by Balazs Koranyi; Editing by Francesco Canepa

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