European Central Bank President Mario Draghi said on Friday protectionist policies pose a “serious risk” for growth in the global economy.
At a gathering of central bankers, economists and others in Jackson Hole, Wyoming, Draghi said the global economy is firming up. He told the audience in a speech that “a turn towards protectionism would pose a serious risk for continued productivity growth and potential growth in the global economy.”
The comments come at a time when President Donald Trump is taking a hard look at the U.S.’s trade agreements around the world, pushing to reduce trade deficits and make conditions more favorable for American manufacturers.
Trump also came to office promising American business leaders he would break down regulations, which he said have constrained economic growth. The financial industry in particular seems poised to benefit if Obama-era regulations on banks and Wall Street get dismantled or diluted.
On Friday, Draghi, a former Goldman Sachs executive, said “there is never a good time for lax regulation” especially because it can create incentives that lead to higher risk-taking.
“By contrast, the stronger regulatory regime that we have now has enabled economies to endure a long period of low interest rates without any significant side-effects on financial stability, which has been crucial for stabilizing demand and inflation worldwide,” Draghi said.
“With monetary policy globally very expansionary, regulators should be wary of rekindling the incentives that led to the crisis.”
Those remarks follow a speech by Federal Reserve Chair Janet Yellen earlier in the day, when she said the financial system is safer now than it was at the time of the 2008 financial crisis. Some regulations that arose from that crisis may need to be adjusted, she noted.
Protectionism is a risk that “is particularly acute in the light of the structural challenges facing advanced economies,” Draghi said in his speech.
The central banker said fostering a robust global economy was essential to preparing for the challenges of an aging population and strained public resources. By 2025, he said, there will be 35 people aged 65 and over for every 100 persons of working age in major developed economies, compared with 14 in 1950. At the same time, public debt levels have surged in those countries from 56 percent of GDP in 2007 to around 87 percent today, Draghi said.
“Only higher potential growth can provide a lasting solution,” Draghi said. “So, clearly, to foster a dynamic global economy we need to resist protectionist urges. But to do so, we also need to identify how best to respond to protectionism.