ECB Sees Subdued Recovery in Trade as Downside Risks Materialize

(Bloomberg) --

The European Central Bank painted a dire picture of global trade prospects as the U.S.-China dispute over tariffs entered a new phase over the weekend.

While some high-frequency indicators point to a small recovery in trade in the near term, the process is going to be “mild” and proceed gradually -- in part due to a subdued outlook for investments, the ECB said in an article released Monday.

“Despite some signs of recovery, global trade is likely to remain more subdued than activity in coming quarters,” researchers Alina Bobasu, Simona Manu and Lucia Quaglietti said. “In addition, downside risks to the outlook for trade have partially materialized in recent months.”

The warning comes after another flare-up in a trade conflict between the world's two largest economies. On Monday, Beijing let the yuan tumble to the weakest level in more than a decade and asked state-owned companies to suspend imports of U.S. agricultural products after President Donald Trump threatened the country with fresh tariffs after talks between the two countries stalled.

The slowdown in trade has been felt particularly by countries with a large manufacturing base in sectors such as electronics and auto-making, the ECB said. It's mirrored by a deceleration in investment.

That's led to a decoupling of global trade and activity since the second half of 2018, although consumption also softened at the turn of the year, according to the ECB.

Persistent economic weakness in the euro area has prompted the ECB to flag fresh monetary stimulus for as early as September. President Mario Draghi said last month that policy makers will review a number of options including interest-rate cuts and renewed quantitative easing.

To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow, David Goodman

©2019 Bloomberg L.P.