Eurozone faces inflation, growth risks from US trade war: Lagarde

The eurozone economy would take a large hit from a full-scale trade war with the United States and inflation could surge, ECB President Christine Lagarde said

- 

The eurozone economy would take a large hit from a full-scale trade war with the United States and inflation could surge, ECB President Christine Lagarde said on Thursday, arguing that greater, not less, trade integration was the solution.

The US has already imposed tariffs on steel and aluminium products from around the world and said it would review its trade relationship with the European Union. This has already prompted retaliatory measures from the EU, which are set to come into effect in April.

A 25 per cent tariff imposed by the US on imports from Europe would lower Eurozone growth by about 0.3 percentage points in the first year, while retaliatory measures could increase this to about half a percentage point, European Central Bank president Lagarde told EU lawmakers in Brussels.

"In the near term, EU retaliatory measures and a weaker euro exchange rate - resulting from lower US demand for European products- could lift inflation by around half a percentage point," she said. "The effect would ease in the medium term due to lower economic activity dampening inflationary pressures."

Lagarde, however, stressed that any estimate was subject to "considerable" uncertainty. Nevertheless, the ECB would be "vigilant" and ready to act to protect price stability, even if it remained open-minded about its next move and would take decisions meeting-by-meeting, she added.