The European Central bank released the meeting minutes from the July 26 monetary policy meeting. Central bank officials noted that protectionism and the uncertainty from the global trade war remained the biggest risks for the Eurozone economy.
“Uncertainties related to global factors remained prominent, in particular with regard to the threat of protectionism and the risk of an escalation of trade tensions,” the minutes showed.
“Tensions could generate a more general decline in confidence throughout the global economy, beyond any directs effects from the imposition of tariffs,” the ECB added.
On growth, officials were confident that Eurozone economic growth remained firmly on track, the meeting minutes showed.
The July monetary policy meeting saw little to no disagreements. The ECB’s governing policy members said that the economic growth was performing as expected. As a result, policymakers concluded that no changes to monetary policy were needed.
The monetary policy meeting held in July came following the decision in June to cut back the bond purchases from September. The governing council also decided to end the ECB’s bond purchases from the end of December 2018.
The ECB’s concerns on the impact of trade wars echo views from many other central banks. In the last week, the RBA and the U.S. Federal Reserve had also released their meeting minutes.
Both the central banks also flagged the risks from the rising threat of protectionist trade policies. In a recent poll conducted by Reuters, the U.S. economy is expected to slow in the coming quarters. A large part of the slowdown is attributed to the trade wars and higher tariffs.
The ECB said that although there were risks from the trade wars, the actual impact on the growth in the Eurozone was limited for now. Officials also noted that the slowdown in the first half was temporary.
Recent economic data showed that this was true. Germany, Eurozone’s largest economy was seen posting 0.5% GDP growth on the quarter ending June 2018. The first quarter GDP was also revised higher to show a 0.4% increase on the quarter. Economists were initially cautious after preliminary reports suggested a possible slowdown in the economy.
The Eurozone was seen enjoying its sixth year of economic expansion. This came amid higher record employment and future growth prospects. Domestic consumption remained and is expected to remain the main driver for growth.
Consumer prices in the Eurozone were also seen rising steadily. Policymakers disagreed on whether the 1.7% inflation forecast would be consistent in achieving the ECB’s inflation target of 2.0%.
“Members broadly shared the view that uncertainties surrounding the inflation outlook had been receding,” the ECB said.
Recent inflation reports showed that headline inflation in the Eurozone rose beyond the ECB’s target of 2.0%. However, the core inflation rate continued to lag below the ECB’s 2.0% inflation target rate.
The ECB’s meeting minutes also showed that there were no considerations made for policy alternatives. The governing council was seen unanimously agreeing to reiterate the current monetary policy.
“It was considered essential to regain sufficient flexibility and optionality for monetary policy,” the ECB minutes said. With the central bank outlining its monetary policy for at least until the middle of next year, the upcoming policy meetings are unlikely to spring any surprises.
The central bank had already ruled out that interest rates will not be changed until the middle of next year at the very least. The next monetary policy meeting is scheduled for September.
