FRANKFURT (Reuters) – Euro zone inflation could surge in the near term but growth would drop in the event of a full-scale trade war with the United States, European Central Bank President Christine Lagarde said on Thursday.
A 25% tariff imposed by the U.S. on imports from Europe would lower euro zone growth by about 0.3 percentage points in the first year, while retaliatory measures could increase this to about half a percentage point, Lagarde told European lawmakers in Brussels.
“In the near term, EU retaliatory measures and a weaker euro exchange rate – resulting from lower U.S. 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.”
(Reporting by Balazs Koranyi; Editing by Gareth Jones)
