Geopolitical events including the election of Donald Trump and Britain’s Brexit vote are the main reasons for the current economic uncertainty, European Central Bank chief Mario Draghi told EU parliamentarians on Monday (28 November).
“Looking at the recent events, it is quite clear that geopolitical uncertainty has become the major source of uncertainty for the months to come,” Draghi warned the European parliament’s economic affairs committee.
The ECB president highlighted, in particular, the decision by British voters to leave the European Union and the risks which the referendum result poses for European economies.
Draghi admitted it was difficult to predict the precise economic implications of Brexit, as these will “notably depend on the timing, progress and final outcome of the upcoming negotiations. “It is therefore important “to have clarity on the negotiation process as soon as possible in order to reduce uncertainty,” he added.
The arrival of US President-elect Donald Trump, a proponent of protectionism, also raises numerous questions on future policy of the world’s biggest economy.
After a strong initial reaction by financial markets, which fell in the face of both events, the subsequent recovery “leads us to the conclusion that markets have been more resilient than one would have expected a few years ago,” said Draghi.
However, these changes “are quite profound and are going to affect the reality of not only the coming months but the coming years,” the ECB chief added.
He said EU members had made “enormous progress” on financial stability and urged them to maintain the single market and “continue strengthening this foundation of our union”.
There is a growing nervousness in the markets about a weekend referendum in Italy on constitutional reform. Tensions between Italian Prime Minister Matteo Renzi and the European Union have reached boiling point ahead of the poll and he has suggested he would step down if voters reject the proposal.
There are fears his resignation could spark elections in which populist anti-euro parties could do well, and possibly even lead to the country leaving the EU.
Asian traders moved cautiously this morning, with the recent Trump-fuelled rally subdued by profit-taking, uncertainty over the vote in Italy and worries about an OPEC plan to cut oil production.
Markets worldwide have soared since Donald Trump was elected US president, on hopes his spending policies will ramp up the world’s top economy.
However, analysts said dealers were taking a breather as other issues come to the fore, with the oil reduction plan in immediate focus.
There are increasing concerns that members of OPEC will not be able to agree the details of an agreement in September to reduce output and support prices, with Iran and Iraq saying they should be exempt.
OPEC members and non-members including Russia are scurrying to hammer out a deal before the group’s twice-yearly meeting on Wednesday.