Existing risks to global growth such as an abrupt tightening of financial conditions likely eased over the past year, thanks to careful communication by the US Federal Reserve, but new threats have emerged due to high policy uncertainty surrounding the fiscal and trade plans of the Trump administration, the European Central Bank said Wednesday.
“Careful communication by the Federal Reserve System, coupled with a very gradual course of monetary policy tightening and the decline in vulnerabilities in major emerging market economies, appears to have eased the risk of a disorderly tightening of global financial conditions,” the bank said in its latest economic bulletin.
Meanwhile, further increases in leverage have raised the medium-term vulnerabilities for China though policy actions to support activity have helped allay concerns about the near-term prospects of the economy, the ECB said.
And, geopolitical tensions remain high, the report added.
On the other hand, new sources of risk have emerged, the ECB warned. One of them is the significant policy uncertainty surrounding the fiscal and trade policies of the new US Administration, the report said. The latter entails potentially significant negative effects on the global economy, the bank pointed out.
Further, the expected gradual recovery of the world economy is contingent on a number of important assumptions about policy, and it remains heavily reliant on ongoing monetary and fiscal policy support, the report said.
“Overall, therefore, although some risks appear to have diminished, the balance of risks to the global outlook remains tilted to the downside,” the ECB said.
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