ECB: A Full-Blown Trade War Would Hit the Real Economy ‘Quite Rapidly

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  • The European Central Bank (ECB) warned that trade tensions and weaker-than-expected economic growth could cause further sell-offs in ailing European markets.
  • The report on Wednesday identified the growing global leveraged loan sector as particularly susceptible to weaker corporate earnings.
  • Higher risk-taking in the investment fund sector was also flagged in the report.

Growing uncertainty about global economic growth could lead to “bouts of high volatility” in financial markets, the European Central Bank (ECB) warned Wednesday.

In its Financial Stability Review (FSR), which provides an appraisal of potential risks to stability in the euro area, the ECB cautioned that weaker-than-expected growth and a possible escalation of trade tensions could trigger further falls in asset prices.

Global stocks have gone through periods of heavy selling on the back of an escalating trade war between the U.S. and China. The Dow Jones Industrial Average index and the S&P are down more than 4.6% and 4% respectively since the start of this month. Meanwhile, the pan-European Stoxx 600 is down 5.2% for the month of May.

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Speaking to CNBC’s Annette Weisbach following the release of the report, Luis de Guindos, vice president of the ECB, said a full-blown trade war between the U.S. and China would be “extremely detrimental,” adding that “it could affect not only the volatility of markets, it could affect the real economy quite rapidly.”

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