Preparing for worse conditions? The European Central Bank warns that tariff shocks may bring eurozone economic growth to zero, accelerating the rate cut process

According to a comprehensive report by Xinhua News Agency, U.S. President Trump signed an executive order on the 2nd, announcing the imposition of so-called "reciprocal tariffs" on all trading partners, with a 20% tariff on products from the European Union.

In response, the European Central Bank is urgently assessing the potential damage that trade shocks may bring to the Eurozone economy. Reuters reported on the 9th, citing sources, that there is an internal belief within the European Central Bank that the impact of these tariff measures may "far exceed previous expectations," potentially bringing Eurozone economic growth to a near standstill this year.

The report states that all sources agree that the previous estimate of a 0.5 percentage point reduction in economic growth was "too low." One source indicated that due to increased uncertainty and a blow to confidence, the actual impact could exceed 1 percentage point. This means that the Eurozone is only expected to grow by about 1% this year. If the impact exceeds 1 percentage point, then economic growth will almost come to a standstill.

Weak economic activity will not only suppress inflation but may also further tilt the European Central Bank's policy path towards easing. The European Central Bank has requested staff to provide new data for policymakers to discuss at the meeting on April 17.

European Central Bank Urgently Assesses Trump's Tariff Impact, May Accelerate Rate Cuts

European Central Bank Governing Council member and Governor of the Bank of France, Francois Villeroy de Galhau, publicly stated that the trade war triggered by tariffs will have a "non-negligible" direct impact on the economy, and it is expected to lower this year's Eurozone economic growth by about 0.25 percentage points. In an interview with Le Monde, he said:

"The changes since April 2 indeed provide a reason to cut rates as soon as possible."

He emphasized that inflation in the Eurozone has significantly slowed, and the recent strengthening of the euro is also curbing price increase pressures:

"We still have room to cut rates and must make decisions flexibly and pragmatically under reasonable circumstances."

However, Villeroy also cautioned that the Eurozone is unlikely to fall directly into recession due to trade conflicts, and policymakers should not hastily revise mid-term forecasts during market volatility.

José Luis Escrivá, Governor of the Bank of Spain and a member of the European Central Bank Governing Council, warned in an interview with the Financial Times that Trump's latest trade policies pose an "extremely serious negative shock" to the global economy and could even undermine the dollar's status as the global reserve currency:

"For decades, the U.S. has relied on multilateral agreements and rule systems to promote trade flows, supporting the dollar's core position in the global financial system. But the current policy shift raises questions about whether these mechanisms can still be sustained."

Ahead of the European Central Bank's monetary policy meeting on April 17, the market has largely priced in expectations for the bank to cut rates for the seventh consecutive time, with rates potentially falling to 2.25%. Even though some voices previously suggested a wait-and-see approach, Trump's tariff measures have clearly disrupted this judgment