Frankfurt, May 27 (SANA) The European Central Bank warned on Wednesday that an escalation of the conflict in the Middle East, combined with global trade tensions, could weaken economic growth in the eurozone and pose risks to financial stability.
In its twice-yearly Financial Stability Review, the ECB said a sharper-than-expected slowdown tied to a prolonged energy shock could trigger concerns over government finances and lead to sudden repricing in sovereign bond markets.
The bank said higher borrowing needs among European governments, driven by increased defense spending, investment in the green transition and potential support measures for households and businesses facing higher energy costs, could add to fiscal pressures in the medium term.
Despite the geopolitical risks, financial markets have largely remained resilient. Stock valuations have stayed elevated, corporate borrowing costs have remained relatively low, and yield spreads between eurozone sovereign bonds have stayed narrow, prompting concerns that investors may be underpricing risk.
Earlier this month, Bank of Greece Governor Yannis Stournaras warned that the risk of the eurozone slipping into recession if the Middle East conflict persists is “real and justified,” adding that the European economy is losing momentum.
kA.ABD
