Looming US-EU trade war is ‘extremely concerning’ for Ireland, Central Bank governor says
By Cate McCurry, PA
A looming trade dispute between the US and the EU is “extremely concerning”, the governor of the Central Bank has said, as he warned that Ireland is in a period of “significant change and volatility”.
Gabriel Makhlouf said that forecasting in a time of “extreme uncertainty” is challenging, adding that he was reluctant to “speculate” on the impact of US tariffs on the Irish economy.
He said on Monday that the views of the Central Bank are in line with those reflected in a report on the potential impact of tariffs from the Department of Finance and the Economic and Social Research Institute (ESRI).
It found that an intense trade dispute between the US and the EU would risk increased prices, fewer new jobs and slower growth in the economy.
Mr Makhlouf also said that the European Central Bank (ECB) must remain cautious about its next interest rate decision, despite inflation moving in the right direction.
He added: “I mean, as far as inflation is concerned, a lot will depend on exactly what is done, and not just what is done by the people imposing tariffs, but what is done in response to those, and not just by the authorities and how they respond, but also how businesses decide to respond.
“They may decide to change their supply chains. How consumers respond. Consumers may choose that they’re not going to buy particular products because of the price, there’s a lot of uncertainty in that.
“I think the job that we have to do, certainly in merger policy, in terms of the ECB, is just being extremely vigilant as to what’s going on, try and understand what’s going on, try not to speculate about what might happen, and make decisions on the basis of speculation.
“I mean in terms of the economic impact on Ireland itself, I’ve seen the comments that the Minister for Finance has made in the last few days and the ESRI and the Department of Finance report.
“Our views are not inconsistent with those. We published our quarterly bulletin last week and basically gave a similar message.
“It is extremely concerning. My overall sense is that we’re living in a period of significant change, significant volatility, and the most important thing that we can do is keep a clear head, understand exactly what is happening, and then make a decision on how to respond and start talking about what our view is as to its impact.
“The last thing I’d want to do is to start speculating in a way that was just uncomfortable.”
Asked whether the ECB will hit its 2 per cent inflation target next year in April, he said that while things are moving in the right direction, they are taking a slow approach and that they are not on a “predetermined rate path”.
“The projections have shown us reaching 2 per cent, just slightly later than the previous ones,” he added.
“I wouldn’t put too much weight on that. The important thing is, 2 per cent is what we’re aiming for.
“The reality, of course, is that we are living in a time of extreme uncertainty, so forecasting is a particular challenge.
“I mean, you need to have a cut-off date, but when so much is happening, inevitably things happen after the cut-off date that play a part in that.
“I’m not too worried about the precise timing. We do, however, need to be pretty prudent and pretty cautious about changes to our monetary policy stance when we’re not yet a (inflation) target and when quite exceptional events are happening around the world, which could have a direct effect on inflation.
“I remain careful and cautious about how we’re going to move from our current stance.”