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Don't expect ECB to address asset bubbles: Vice President

Asset prices across the euro zone are not overvalued on average and in any case, monetary policy should not be used to address bubbles, European Central Bank Vice President Vitor Constancio said on Wednesday.

"There are pockets where assets are perhaps a little bit overvalued," Constancio told a conference on banking supervision, adding that the ECB was monitoring these very closely.

Separately on Wednesday, the ECB said the direct impact of China's economic slowdown on euro zone growth via trade will be modest, but the impact from indirect channels may be more significant.

China's economic growth dipped below 7 percent in the third quarter, its slowest since the global financial crisis, and Beijing has rolled out a flurry of measures to avert a sharper slowdown.


Vitor Constancio, Vice President of the Supervisory Board of the European Central Bank in February, 2014.
Daniel Roland | AFP | Getty Images
Vitor Constancio, Vice President of the Supervisory Board of the European Central Bank in February, 2014.

"Available estimates suggest that the direct and indirect trade effects from a 1 percentage point slowdown in Chinese real GDP are relatively muted, and amount to a decline of around 0.1 to 0.15 percentage point in euro area activity after two to three years," the ECB said in an economic bulletin.

But it also warned that China's slowdown will cut growth in emerging markets and heighten global uncertainty, which could then indirectly affect euro area household confidence, holding back consumption and investments decisions.

"Another possible channel for transmitting negative shocks to the euro area is confidence effects, where, for instance, capital outflows can be triggered by adverse confidence shocks, leading to a tightening of financial conditions in emerging markets and a further slowdown of euro area foreign demand," the ECB said.

Capital outflows from China could also weaken the Chinese currency, dragging down other emerging market currencies with it, the ECB added.