By Tom Fairless
FRANKFURT--The European Central Bank warned on Thursday of a "highly uncertain" economic fallout from U.S. elections, including possible asset-price corrections and new protectionist measures that could harm global trade.
Economic policies introduced by President-elect Donald Trump "will likely become more inward-oriented," and the U.S. fiscal deficit may grow as a result of tax reductions and increased infrastructure and defense spending, the ECB wrote in its biannual Financial Stability Review.
"There may be some protectionist measures or not, every day we read contradictory news," the ECB's Vice President Vítor Constâncio said at a news conference.
If theU.S. were to adopt protectionist policies such as import tariffs or other restrictions, that would trigger reactions in other countries "who will take counter measures," Mr. Constancio said.
"That's very risky in situation where world trade already very weak," he said. "World trade and growth will suffer."
The eurozone's EUR10 trillion ($10.5 trillion) economy may be affected by U.S. policy changes via trade channels and by possible spillover effects from higher interest and inflation rate expectations in the U.S., the ECB said.
Global asset prices may also be impacted by other political events in advanced economies, and continued fragility in emerging markets, the ECB said.
The Frankfurt-based central bank also warned of "significant" vulnerabilities in the eurozone's banking sector, stemming from low profitability and a high stock of nonperforming loans.
Still, a recent rise in bond yields "may provide some support for euro area banks' profitability prospects," the ECB said.
Write to Tom Fairless at firstname.lastname@example.org
(END) Dow Jones Newswires
November 24, 2016 05:22 ET (10:22 GMT)
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