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Investing.com -- A warning was issued on Wednesday by Francois Villeroy de Galhau, the French central bank chief, about the potential of a US recession due to the fallout from a global trade war. He noted that while the euro zone might experience lesser effects, it would still suffer.
The United States has imposed tariffs on many countries worldwide. Even though some of these duties have been suspended, many remain, and the potential for trade instability continues to impact confidence, investment, and output negatively.
Villeroy, speaking to the Atlantic Council in Washington, expressed that the new measures and the growing unpredictability are a significant negative shock to the global economy, primarily to the U.S. economy. He mentioned the possibility of a U.S. recession, a scenario that was unthinkable just three months ago.
Villeroy, who is a key policymaker at the European Central Bank (ECB), suggested that the euro zone’s impact could be smaller. However, the conflict could still reduce the 2025 GDP by at least a quarter of a percentage point.
Contrary to some economists’ belief that a trade war could cause inflation, Villeroy downplayed these concerns. He suggested that the net impact could even reduce prices. He stated that there is currently no inflationary risk in Europe and that the effect of a trade war on inflation remains uncertain but could overall be on the downside.
Villeroy also expressed concern about the potential disruption in financial markets due to further attacks on the independence and credibility of central banks. This concern comes after U.S. President Donald Trump repeatedly criticized Federal Reserve Chair Jerome Powell in recent weeks. However, Trump backed off from threats to fire Powell this week, which helped fuel a rally in financial markets that had been worried about a potential loss of the Fed’s independence.
Villeroy expressed his gratitude to Fed Chair Powell, commending his admirable behavior as a central banker.
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