Financial stability: ECB: Weak growth and trade conflicts increase risk

In an increasingly harsh international environment, the risks for financial players in the euro area have increased, according to the European Central Bank (ECB). “The outlook for financial stability is clouded by increased macro-financial and geopolitical uncertainty coupled with growing trade policy uncertainty,” said ECB Vice President Luis de Guindos, summarizing the findings of the central bank’s latest semi-annual financial stability report.

Trade conflicts with the USA, for example, could put additional pressure on the already weak economy. US President-elect Donald Trump has announced new tariffs of 10 to 20 percent on imports from Europe.

Even if the financial markets have proven resilient so far, there is no reason for complacency, warned the ECB. One of the things that worries the euro currency watchdog is the still high level of debt in many countries. At the same time, as the economy weakens, concerns about the sustainability of national debt could resurface in the financial markets.

Commercial real estate markets remain under pressure

According to the ECB, small and medium-sized companies and households with low incomes could come into distress if economic growth slows even more than currently expected. Then there is a risk of more loan defaults. For example, there is a risk that losses from commercial real estate loans will continue to rise and could be significant for individual banks and investment funds, writes the ECB. Because less office space is needed due to the home office trend, the market for these properties has been under pressure in many countries for some time.