FRANKFURT (Reuters) - Risks to global growth appeared to have diminished, with markets so far taking policy tightening from the U.S. Federal Reserve in their stride, the European Central Bank said on Wednesday in a regular economic bulletin.
But the outlook remains tilted towards the downside due to new factors, notably signals from the United States suggesting a shift towards protectionism.
The chances of an abrupt shift in global financial conditions appear to have eased, major emerging market economies seem to be in better shape than in recent years and Chinese policy support for growth has mitigated concerns about the short-term outlook, the ECB said.
“Careful communication by the Federal Reserve System, coupled with a very gradual course of monetary policy tightening, and the decline in vulnerabilities in major emerging markets, appears to have eased the risk of a disorderly tightening of global financial conditions,” the ECB said.
But new sources of risk, particularly from the potentially protectionist direction of the new U.S. administration, could have a significant negative effect on the global economy, the ECB added.
China’s vulnerabilities over the medium term are also still elevated, given a further rise in leverage, and potentially contentious negotiations over Britain’s departure from the European Union remain a source of concern, it added.
“Overall, therefore, although some risks appear to have diminished, the balance of risks to the global outlook remains tilted to the downside,” the ECB added.
Reporting by Balazs Koranyi; editing by John Stonestreet