Recent trade tensions between America and China will have a negative impact on the European Union. In addition to the fact that the trade war will help certain economies to get their economy back on their feet, a large number of analysts as well as bank board members around the world are looking at this situation with reserve. A recent speech by ECB chief Pierre Cipollone has worried central banks across Europe.

According to him, reducing the interest rate is the goal of the ECB, but there is no need to hurry because the economy is slowly struggling with the economic crisis that is a consequence of Russian war with Ukraine and pandemic. Inflation is slowly calming down, so a possible reduction in interest rates is on the horizon. The ECB has reduced borrowing costs five times since June, and investors analyzing the situation see several more interest rate cuts this year.

Considering the American trade policy and the situation in which Europe finds itself, it is a crucial moment to take certain measures in order to encourage economic growth in Europe. Looking at the gigantic production of China, which in the future will not easily sell its goods on the American market, a large part of the same goods will flood Europe at a significantly lower price and thus cause damage to the European economy.

Despite the fact that investors and Piero Cipollone himself agree that there is room for lowering interest rates, the fact that the European economy is in rough seas is indisputable.

Increasing energy prices and global trade tensions are not good indicators, and therefore it makes no sense to reduce the interest rate for now. The decisions of the ECB have not changed regarding the reduction of interest rates in 2025. but the development of the economy in the EU, as well as the trade war affecting Europe, are viewed with reserve.

And if many were hoping for a reduction in interest rates, last month we had an increase in inflation to 2.5%, but as Cipollone said, the ECB sees a reduction to 2% this summer.

Christine Lagarde said Inflation is still above the ECB’s target as weak productivity growth and labor shortages keep pressure on prices, thereby limiting the ECB’s ability to act.

The ECB’s goals are to reduce the interest rate from 2.7% to 2.5% in March in order to increase the productivity of the member countries. The ECB is therefore concerned because the great uncertainty is American trade policy, which would strongly affect Europe because President Trump is seriously undermining European economic growth and the economy through his trade war with China.

Speaking to Reuters, Piero Cipollone said companies could absorb some of the higher costs by sacrificing profit margins, while the inevitable weakening of the euro against the US dollar would also ease the block. According to him, it is important that Europe does not expect a recession and that economic growth will remain neutral due to the trade war.

Despite all expectations, an uncertain year awaits us in terms of inflation and economic growth, looking at the external factors that affect economic development as well as the fear caused by America’s decisions, most analysts would agree with the situation that perhaps it is best to remain neutral this year in terms of economic development, and at the same time, if possible, calm inflation so that the economy can get back on its feet.