Christine Lagarde FRANKFURT, Mar 20 (AFP): European Central Bank chief Christine Lagarde warned Thursday a trade war between the United States and Europe could shave half a per centage point off eurozone growth and push up inflation.
US President Donald Trump is threatening to levy duties of 25 per cent on all goods from the European Union, which runs a hefty trade surplus with the United States.
Addressing the European Parliament, Lagarde said the 20-nation euro area was "particularly exposed to shifts in trade policies".
ECB analysis suggested 25-per cent US tariffs could dent eurozone growth by about 0.3 per centage points in the first year and, if Europe retaliated, the drop could be as much as half a per centage point, she said.
The eurozone has already been eking out meagre growth in recent years as it contends with high production costs and weak demand from key trading partners.
In its latest forecasts released earlier this month, the ECB predicted growth of just 0.9 per cent for the euro area this year and 1.2 per cent in 2026.
An US-EU trade war would also make the outlook for consumer prices "significantly more uncertain," she warned, adding that inflation could increase by around half a per centage point in the near term.
Eurozone inflation, which surged after Russia's invasion of Ukraine, has been gradually slowing towards the ECB's two-per cent target, coming in at 2.3 per cent in March. While noting the estimates were subject to "very high uncertainty", Lagarde urged the European Union to respond by forging closer trading relationships globally.
"The answer to the current shift in US trade policies should be more, not less, trade integration, both with trade partners around the globe and within the EU," she said.
"Trade integration, including free trade agreements, has been a driver of economic prosperity and can protect against unilateral trade measures."
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