(Finance) – “Geopolitical tensions are increasingly giving rise to economic and financial fragmentation and represent a significant risk for global prosperity, with trade flows that are already visibly decoupling along lines of geopolitical influence”. This was stated by the president of the European Central Bank (ECB), Christine Lagardein a speech at the annual meetings of the IMF.
“So far, this decoupling has been limited to specific sectors, such as energy and key advanced technologies,” he explained. “The ECB’s analysis suggests that the Trade fragmentation could lead to global GDP losses ranging from almost 6% in a scenario of higher trade barriers erected only for strategic products, to 9% in a more severe scenario of complete decoupling.”
According to the central banker, “trade fragmentation could lead to renewed inflationary pressures globally, not only due to rising production input costs, but also due to reduced diversification opportunities. Overall, this would make more difficult for central banks to guarantee price stability. It is therefore vital that legitimate concerns about supply chain security and resilience do not lead to a spiral of protectionism.”
Regarding the ECB’s latest rate cut, he said that “incoming information on inflation shows that the disinflation process is on track” and “recent indicators of economic activity have surprised somewhat on the downside and financing conditions remain restrictive.”
“We expect that inflation will temporarily rise again in the fourth quarter of this year, as previous sharp drops in energy prices will disappear from annual rates – he underlined – After that, inflation should start to fall again, reaching our target next year and averaging around 1.9% in 2026, according to September projections.”