FRANKFURT: 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 has warned.
“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,” said ECB Vice President Vitor Constancio.
“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 euro zone 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.
The German economy has meanwhile shrugged off the shock election of Trump as US president, with business confidence holding at a two-year high and growth seen picking up in the final quarter.
Economic upturn
“The economic upturn in Germany remains intact. The German economy seems to be unfazed by the election of Donald Trump as US President,” said the Munich-based Ifo economic institute in a statement seen in Berlin.
The Ifo’s headline business confidence index reached 110.4 points in November, unchanged from the October reading, and the highest level since April 2014.
The survey suggests that the “German economy is in good shape,” said analysts at Capital Economics.
The construction sector showed the greatest optimism about the business climate, with a sub index reaching a new record high.
Wholesaling was also positive, but the manufacturing sector signalled less optimism about the coming six months, “mainly due to less dynamic export prospects.”
Although Trump has not spoken specifically about a planned free trade deal between the EU and the US, German Chancellor Angela Merkel admitted last week that the accord would now not be completed.
Although the German economy was once heavily weighted toward exports, domestic consumption has in recent months become a main driver of growth.
With unemployment sinking to a record low and wages steadily rising, consumption power has been rising in Europe’s biggest economy.
The arrival of almost 900,000 asylum seekers last year alone has also prompted the government to invest heavily in infrastructure for the newcomers.
On Thursday, federal statistics office Destatis confirmed that growth reached 0.2 percent in the third quarter, held up mainly by domestic consumption.
Domestic spending rose 0.4 percent and state expenditure by one percent compared to the preceding quarter, but gross investment and imports experienced negligible growth and exports fell by 0.4 percent.
“Foreign trade had a negative effect on gross domestic product (GDP) growth” on the order of 0.3 percentage points, Destatis said of the period that covers the immediate aftermath of the Brexit referendum in Britain, a major market for German goods.
Analysts have however predicted a pick-up in activity for the final quarter before easing off again in 2017.
In 2015, Germany notched up economic growth of 1.7 percent.
The government predicts growth of 1.8 percent in 2016, which will fall to 1.4 percent in 2017.
“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,” said ECB Vice President Vitor Constancio.
“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 euro zone 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.
The German economy has meanwhile shrugged off the shock election of Trump as US president, with business confidence holding at a two-year high and growth seen picking up in the final quarter.
Economic upturn
“The economic upturn in Germany remains intact. The German economy seems to be unfazed by the election of Donald Trump as US President,” said the Munich-based Ifo economic institute in a statement seen in Berlin.
The Ifo’s headline business confidence index reached 110.4 points in November, unchanged from the October reading, and the highest level since April 2014.
The survey suggests that the “German economy is in good shape,” said analysts at Capital Economics.
The construction sector showed the greatest optimism about the business climate, with a sub index reaching a new record high.
Wholesaling was also positive, but the manufacturing sector signalled less optimism about the coming six months, “mainly due to less dynamic export prospects.”
Although Trump has not spoken specifically about a planned free trade deal between the EU and the US, German Chancellor Angela Merkel admitted last week that the accord would now not be completed.
Although the German economy was once heavily weighted toward exports, domestic consumption has in recent months become a main driver of growth.
With unemployment sinking to a record low and wages steadily rising, consumption power has been rising in Europe’s biggest economy.
The arrival of almost 900,000 asylum seekers last year alone has also prompted the government to invest heavily in infrastructure for the newcomers.
On Thursday, federal statistics office Destatis confirmed that growth reached 0.2 percent in the third quarter, held up mainly by domestic consumption.
Domestic spending rose 0.4 percent and state expenditure by one percent compared to the preceding quarter, but gross investment and imports experienced negligible growth and exports fell by 0.4 percent.
“Foreign trade had a negative effect on gross domestic product (GDP) growth” on the order of 0.3 percentage points, Destatis said of the period that covers the immediate aftermath of the Brexit referendum in Britain, a major market for German goods.
Analysts have however predicted a pick-up in activity for the final quarter before easing off again in 2017.
In 2015, Germany notched up economic growth of 1.7 percent.
The government predicts growth of 1.8 percent in 2016, which will fall to 1.4 percent in 2017.
