Trump trade war poses threat to eurozone economy, warns ECB boss Mario Draghi

Draghi flagged 'the threat of protectionism' but still ended the central bank's €2.6 trillion money printing stimulus programme.

The boss of the European Central Bank, Mario Draghi, has warned that Donald Trump’s trade war is hurting the eurozone.

Unveiling weaker growth forecasts in Frankfurt on Thursday, Mr Draghi flagged “the threat of protectionism”.

“When we look at all these drivers of the recovery, yes, it is true, it is just weaker. It is just weaker and it’s not just one off, it has been weaker for a while,” he said.

“The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. However, the balance of risk is moving to the downside owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.”

Nevertheless, the ECB also confirmed that this month will mark the end of its €2.6 trillion money printing Quantitative Easing programme, which began in early 2015 to ward off the threat of deflation.

In a statement the central bank said that interest rates will stay their current historic low rates “for as long as necessary” to ensure inflation returns sustainability to the target of just below 2 per cent.

“Significant monetary policy stimulus is still needed to support the further buildup of domestic price pressures and headline inflation developments over the medium term,” said Mr Draghi.

The ECB is now projecting eurozone GDP growth of 1.9 per cent this year, falling to 1.7 per cent in 2019. This is down from its 2 per cent forecast for 2018 and 1.8 per cent for 2019 in its September outlook.

The cental bank sees inflation this year of 1.8 per cent, slipping to 1.6 per cent in 2019.

“Measures of underlying inflation remain generally muted, but domestic cost pressures are continuing to strengthen and broaden amid high levels of capacity utilization and tightening labour markets, which is pushing up wage growth,” said Mr Draghi.

Headline inflation for the single currency area was 2 cent in October, according to Eurostat.

But this was heavily driven by oil prices. Excluding volatile energy, food an alcohol the rate was just 1 per cent.

“While Mario Draghi was boxed in by previous announcements about QE, his press conference revealed two stark truths – he remains deeply concerned at the fragility of eurozone growth and reserves the right to administer further monetary stimulus,” said JR Zhou of Infinox