Warning of a Negative Demand Shock in the Euro Area

Yannis Stournaras, a member of the European Central Bank (ECB) Governing Council and Governor of the Bank of Greece, has issued a stark warning regarding 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 believes could significantly weaken growth across the region.

Impact on Inflation and Economic Outlook

Stournaras expressed concerns that such a slowdown might drive inflation below the ECB's 2% target, especially considering the already "modest" economic outlook. His comments to the Financial Times highlight the delicate balance the ECB faces in navigating these uncertain times.

Deflationary Measures and Global Uncertainty

Despite recent hints from the ECB about pausing rate cuts, Stournaras emphasized that "tariffs are definitely a deflationary measure." He pointed to the "unprecedented" level of global uncertainty sparked by US actions, estimating that eurozone growth could suffer a reduction of up to one percentage point as a direct consequence.