A full scale trade war could be extremely bad for the global economy

Market Trends - 30/05/2019

On Wednesday European Central Bank (ECB) signaled that an Increasing skepticism regarding the global economic extension could push markets to “bouts of high volatility".

The European Central Bank in its Financial Stability Review, which presents an assessment of the possible dangers that threaten the balance in the euro area, warned that a possible increase of trade tensions and a weaker-than-expected economy increase could cause more declines in asset values.

Global stocks went through times of massive sell-offs due to an increasing trade conflict between the U.S. and China.

The Dow Jones index and the S&P dropped both more than 4 % since the start of May.

The vice president of the ECB Luis de Guindos said after the release of the report,  a full-scale trade conflict between the U.S. and China will probably be “extremely detrimental,” adding that “it could affect not only the volatility of markets, it could affect the real economy quite rapidly.”

He said that would be “very negative news” for the global economy if with the current situation we have a full-blown trade war.

In March, the euro zone’s central bank cut its growth outlook for 2019 by more than 1% from an earlier estimate of 1.7% made late 2018.

A senior investment director at Aberdeen Standard Luke Hickmore said,

“The ECB is doing exactly what you’d hope they’d do, they’re warning you about risks, but you’re getting well paid for a lot of those risks if you’re in the credit markets,” he said, adding that within the credit landscape “there are lots of attractive opportunities around European banks, with a few risks.”

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