The European Central Bank (ECB) has published a study emphasizing that the escalation of global trade tensions has become a significant concern for world growth and financial stability.

The report, released this Tuesday, notes that the European Union (EU) is particularly exposed to trade with the United States.

The growing friction in trade relations among major economies, particularly between the U.S. and its partners, has increased uncertainty in trade policies.

This situation has evolved into a critical concern for both businesses and policymakers, who now face the risk of redirected trade flows, reconfigured value chains, reduced investment, and stunted economic growth.

Authored by economists Pauline Avril, Paul Bochmann, Stephan Fahr, Aoife Horan, Cosimo Pancaro, and Riccardo Pizzeghello, the study warns that market revaluation continues to pose a significant risk to the financial stability of the eurozone.

Furthermore, the likelihood of new disruptions in U.S. trade policy affecting eurozone markets remains high.

Every sector within the eurozone equity markets is sensitive to adverse disruptions stemming from U.S. trade policies.

However, the automotive, consumer products, information technology, industrial, materials, and financial sectors are identified by markets as particularly vulnerable.

For eurozone banks, uncertainties related to trade policy could have detrimental effects on financial markets and their balance sheets.

The report highlights that such tensions have considerably adverse effects on stock prices in the banking sector and on certain market-based bank risk metrics.

This broader impact may impose higher provisioning requirements, lower profitability, and a reduction in credit to the real economy.

The authors of the analysis state that "trade tensions can represent a threat to financial stability," noting that both the implementation of trade restrictions and the uncertainty surrounding trade policies can have adverse consequences.

They recommend that authorities identify these derived risks, monitor their transmission, and evaluate their potential impact on financial stability.

Furthermore, while robust capital and liquidity reserves are described as "the first line of defense" for financial entities to absorb shocks arising from trade tensions, the study underscores the necessity for banks to conduct regular assessments to identify and evaluate these specific risks and to diversify their portfolios to minimize exposure.

Last week, ECB Vice President Luis de Guindos alerted that trade tensions present "specific risks" for a eurozone that is deeply integrated into global supply chains, which could test vulnerabilities related to financial stability.