ECB Official Warns of Negative Demand Shock from US Tariffs

Yannis Stournaras, a member of the European Central Bank (ECB) Governing Council and Governor of the Bank of Greece, has issued a stark warning about the potential for a "negative demand shock" in the euro area. This comes in response to the wide-ranging tariffs imposed by US President Donald Trump, which Stournaras fears could significantly dampen growth across the region.

Impact on Inflation and Economic Outlook

Stournaras expressed concerns that the tariffs could drive inflation below the ECB's 2% target, exacerbating the already "modest" economic outlook. He described the tariffs as "definitely a deflationary measure," highlighting the unprecedented level of global uncertainty they have created.

Potential Reduction in Eurozone Growth

Estimating the potential fallout, Stournaras suggested that eurozone growth could decline by up to one percentage point as a direct consequence of these trade measures. This warning comes at a time when the ECB had recently indicated a possible pause in rate cuts, adding another layer of complexity to the eurozone's economic challenges.