Central European economies may be more vulnerable to a global trade war given their high reliance on foreign trade and particular focus on single industries, such as car manufacturing, European Central Bank President Mario Draghi said today.
"The central and eastern European business model has become vulnerable to shocks to international trade and financial conditions," Mr Draghi told an ECB conference.
"The effect of tariffs could be amplified, as a large share of goods cross borders multiple times during the production process," Mr Draghi said.
"The main long-term challenge is moving towards a more balanced growth and financing model, which is more reliant on domestic innovation and on higher investment spending than it has been so far," he added.
Earlier, ECB policymaker Francois Villeroy de Galhau said the ECB is prepared to act further if the current economic downturn takes a turn for the worse even though central banks cannot alone do everything to keep economies strong.
Villeroy, who is also governor of the Bank of France, said that uncertainty over trade tensions between the US and China was the biggest threat to the global economy.
As long as inflation falls short of the ECB's target, it must keep monetary policy "active and accommodative" as long as necessary, Villeroy said.
"If the current slowdown becomes a real slamming of the brakes, we can do more than we are doing currently," Villeroy said.
He added, however, that it was up to politicians to resolve the uncertainty created by trade tensions and that central banks could not do everything to keep economic growth strong.
"They can temporarily attenuate the consequences of a weaker global economy, but they cannot take care of the cause," he said.