Central Bank governor: US-EU trade deal will 'dampen' growth

On last week's interest rate decision, Gabriel Makhlouf said he believes they’ve reached a point in the easing cycle 'where we can wait and see whether the data and evidence indicates the need for a change in our monetary policy stance'

Gabriel Makhlouf said there was insufficient detail to provide a considered analysis of the deal but these tariffs will require a mix of absorption by firms, which means reducing their profits, or increasing the cost of these goods for US consumers. File photo: Eamonn Farrell, ©RollingNews.ie

The US imposition of 15% tariffs on EU goods will “dampen economic growth” although it will be partially offset by “reducing uncertainty” and the likelihood of a more damaging trade war that has dominated the economic environment since the start of the year, Central Bank of Ireland governor Gabriel Makhlouf has said.

On Sunday, the EU and US agreed the framework of a trade deal which will see tariffs of 15% placed on imports from the bloc to the US.

Writing in a blog post, Mr Makhlouf said there was insufficient detail to provide a considered analysis of the deal but these tariffs will require a mix of absorption by firms, which means reducing their profits, or increasing the cost of these goods for US consumers.

“Overall, compared to six months ago, US tariffs of 15% on EU goods will dampen economic growth, although it will be partially offset by reducing uncertainty and the likelihood of a more damaging trade war that has dominated the economic environment since the start of the year,” he said.

However, Mr Makhlouf said he would refrain from commenting further on the deal given the “unpredictability that has been such an obvious feature of US Administration policy over the last six months”, and the "fact that details matter”.

Last week, Mr Makhlouf, and his colleagues on the ECB Governing Council, decided to keep interest rates where they are for the time being. On this, he said “inflation was on track to stabilise at our 2% target in the medium term”.

On the inflation picture in Ireland, Mr Makhlouf said the Irish economy and public finances have “entered this period of heightened uncertainty from a strong position but there are also underlying vulnerabilities that need to be managed carefully”.

Given the publication of the National Development Plan as well as the Summer Economic Statement last week, Mr Makhlouf said fiscal policy has to “strike a balance between delivering on the necessary rise in public capital investment in the coming years” and “current spending demands that seek to maintain or enhance existing levels of public services”.

On the interest rate decision from last week, Mr Makhlouf said he believes they’ve reached a point in the easing cycle “where we can wait and see whether the data and evidence indicates the need for a change in our monetary policy stance”.

“We are not committing to a particular rate path, and will continue to take account of new information when it arrives,” he said.

The next ECB meeting is in September.