Tariffs imposed by the United States continue to put pressure on growth and inflation in the eurozone, but their impact may be offset by looser monetary policy, according to a study by European Central Bank economists.
The study found that the fall in demand due to trade tariffs is greater than any inflationary impact from supply disruptions, thus creating downward pressure on consumer price levels in the eurozone.
According to the analysis, a trade shock that reduces eurozone exports to the United States by 1% could lower consumer prices by around 0.1% over a year and a half, indirectly adding to the challenge for the ECB at a time when inflation is currently below target.
Trade data showed that eurozone exports to the US have fallen sharply in recent months, after a period of uncertainty driven by early buying to avoid a 15% basic tariff on EU goods.
Finally, the ECB study highlighted that the sectors most affected by the tariffs include machinery, automotive and chemicals, which are also the sectors most sensitive to changes in interest rates. This indirectly opens up space for interest rate cuts to re-stimulate production and reduce the negative impact of tariffs.
