ECB Warns Trade Conflicts Threaten Global Financial Stability
(MENAFN) The European Central Bank (ECB) has expressed concern that rising global trade disputes may jeopardize financial system stability and hinder economic development.
In a statement released Tuesday, the ECB highlighted the risk that prolonged trade friction poses to the broader economy.
According to the report, "Following a decade of robust economic growth, trade openness, measured by the global trade-to-GDP ratio, has largely stagnated since 2008, reflecting, among other things, growing skepticism towards globalization."
This suggests that, after years of strong economic performance, international trade engagement has plateaued, partly due to increasing doubt about the benefits of globalization.
The document further explained that geopolitical turmoil not directly related to trade policy could still intensify trade-related strains.
These developments may influence both the overall amount of international trade and the balance of imports and exports between global trade partners.
As the report put it, "In addition, adverse geopolitical developments unrelated to trade policy itself may aggravate trade-related tensions, altering the volume of global trade as well as the relative shares of imports and exports between trading partners."
The ECB underscored that trade tensions pose a significant risk to financial system security. Uncertainty in trade policies may lead to slower economic momentum and undermine banks’ financial health, including their funding, asset values, income, and credit activities.
Highlighting recent developments, the ECB noted, "The recent escalation of trade frictions between major economies – especially between the United States and its trading partners – has fueled trade policy uncertainty and emerged as a critical concern for businesses and policymakers alike."
These escalating disputes have become a pressing issue for economic leaders and corporate stakeholders.
The report emphasized that increased unpredictability could shift trade patterns, disrupt global supply networks, discourage new investment, and dampen overall economic activity.
It also called for financial institutions to stay vigilant: “While sound capital and liquidity buffers are the first line of defense to absorb shocks stemming from trade disruptions, financial institutions should conduct regular assessments to identify and evaluate the specific risks associated with trade tensions.”
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