| ECB-Financial Stability Review, May 2025
May 13, 2025--When the US Administration announced a new set of tariffs in April this year, it caused a spike in financial market volatility while testing stretched market valuations. Although expectations for tariff rates have eased somewhat since then, the repercussions of the shock continue to reverberate and the risks of an economic slowdown have increased markedly. |
| Financial markets across the globe sold off at an unsettling speed in early April and financial conditions tightened considerably. While risky assets have been recovering their losses since temporary tariff pauses were announced, markets remain highly sensitive to news about global trade arrangements.
The abrupt change in US tariff policy forms part of a larger shift in the geopolitical environment, with economic and financial impacts that could yet test euro area financial stability. Uncertainty lingers within many important policy domains beyond trade-from regulation to national security. In this environment, the likelihood of increasingly frequent and impactful adverse tail events has increased. Furthermore, while global imbalances remain a long-standing issue in the policy debate, it is not clear that tariffs are the best-placed policy instrument to address them. |