Coronavirus is 'new layer of uncertainty' for economy: ECB president Lagarde

FRANKFURT  - China’s coronavirus outbreak is adding to global economic uncertainty, compounding already widespread worries over the impact of trade protectionism, European Central Bank President Christine Lagarde said on Wednesday.

The ECB has long warned that global risks weigh on the euro zone’s economic outlook but has recently sounded more optimistic, arguing that risks appear to be abating, driving investors to price out expectations for more central bank easing.

Lagarde’s newest comments may signal increased caution and could point to continued anemic growth in the 19-member currency bloc.

“While the threat of a trade war between the United States and China appears to have receded, the coronavirus adds a new layer of uncertainty,” Lagarde said in Paris.

“The short-term uncertainties are mainly related to global risks – trade, geopolitical and now the outbreak of the coronavirus and its potential effect on global growth,” she said.

Lagarde did not hint at any fresh policy moves to counter the new risks. She said that the ECB’s forward guidance on interest rates and asset purchases acts as an effective automatic stabilizer.

The ECB guides markets for steady or lower rates until there is a robust rise in inflation, a formulation that automatically delays any rate increase if inflation pressure abate.

The ECB targets inflation at just below 2% but has undershot this figure since 2013, despite unprecedented stimulus.

Euro zone gross domestic product grew by 0.1% in the third quarter, a figure that fell short of expectations. Lagarde downplayed the miss, saying it was “broadly” in line with the ECB’s projections.

(Reuters) Reporting by Balazs Koranyi; editing by Kevin Liffey, Larry King

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