Christine Lagarde has warned that a second Trump presidency could pose a risk to the eurozone economy, as the European Central Bank (ECB) cut interest rates for the third time this year.
The ECB President cautioned about potential “downside” risks if Donald Trump wins the U.S. election in November, while announcing a reduction in borrowing costs. Today, ECB policymakers lowered the deposit rate from 3.5% to 3.25%, citing “recent downside surprises” in eurozone economic activity.
Germany, Europe’s largest economy, is now facing its first two-year recession in two decades, according to recent government forecasts.
The ECB’s rate cut follows Trump’s announcement of plans to impose tariffs on non-American goods if he returns to office. In response, the European Union has prepared a list of U.S. products it could target with tariffs, according to Bloomberg. This preparation comes after the bloc was caught off guard by Trump’s tariffs on steel and aluminum exports in 2018.
When asked how Trump’s potential return to the White House and his tariff plans would impact growth and inflation in the eurozone, Lagarde emphasized the importance of trade: “Trade is a key driver of economic activity. Any restrictions, uncertainty, or obstacles to trade are significant for an open economy like Europe’s, which relies heavily on both internal and global trade.”
She added, “Any increase in trade barriers, tariffs, or other obstacles that limit our ability to trade globally presents a clear downside risk.”
