Global political frictions could bring turmoil for economic growth and inflation, European Central Bank Executive Board member Fabio Panetta warned.
(Bloomberg) — Global political frictions could bring turmoil for economic growth and inflation, European Central Bank Executive Board member Fabio Panetta warned.
“Geopolitical shocks may trigger persistent output and inflation volatility, with multiple spillovers,” Panetta said Monday in a speech, cautioning that so-called fragmentation may affect ECB monetary policy.
“Russia’s aggression against Ukraine has, for instance, disrupted energy and commodities markets, with major implications for inflation,” the Italian official said.
Geopolitical hotspots have been multiplying of late — be it the war in Ukraine or the potential for conflict around Taiwan. Central bankers are increasingly concerned about the knock-on effects of de-globalization as many countries seek to implement costly green policies.
Panetta said:
- Efforts to diversify imports and reduce foreign dependencies on specific countries may reduce productivity and curb the demand for safe assets coming from these countries, pushing up global interest rates
- Capital movements and financing conditions could also be affected
- At the same time, changes in international labor supply may affect the composition and dynamics of domestic labor markets, causing mismatches, changes in wage-setting relations and wage rises in the longer run
“The evolving nature of globalization could influence the natural rate of interest,” he said.
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