The potential for the United States to enter a recession due to the ongoing global trade war was highlighted by French central bank chief Francois Villeroy de Galhau in a recent address. He indicated that the repercussions would be far-reaching, affecting economies around the world, including the eurozone, albeit to a lesser extent. Villeroy voiced these concerns while speaking to the Atlantic Council in Washington, emphasizing how the U.S. has enacted numerous tariffs on various countries, with many remaining in effect despite the suspension of some duties.
This uncertainty and trade turmoil significantly undermine confidence, investment, and overall economic output. Villeroy noted that the new measures introduced, along with the unpredictability surrounding trade relations, constitute a substantial negative shock for the global economy, particularly for the U.S. economy. He pointed out that the likelihood of a U.S. recession has escalated, which seemed improbable just a few months prior.
While the eurozone may experience a smaller impact, Villeroy suggested that the economic strife could still detract from the region’s GDP by at least a quarter of a percentage point by 2025. He addressed concerns from economists predicting that a trade war might escalate inflation but advised against such fears, stating that the overall effect might even lead to lower prices. Villeroy firmly asserted that there is currently no inflationary risk in Europe and the potential repercussions of a trade war on inflation remain uncertain but could ultimately decrease it.
Additionally, Villeroy warned that ongoing attacks on the independence and credibility of central banks could exacerbate the financial market disruptions witnessed in recent weeks. He acknowledged President Trump’s recent remarks criticizing Federal Reserve Chair Jerome Powell but noted a positive turn as Trump refrained from threats to dismiss Powell, which temporarily boosted confidence in the Fed’s independence. Villeroy expressed his appreciation for Powell, recognizing his exemplary conduct as a central banker.