FRANKFURT, May 16 — Geopolitical tensions and policy uncertainty in a year featuring many elections worldwide present risks to euro area financial stability, the European Central Bank (ECB) warned today.

In its half-yearly financial stability review, the ECB said conditions had improved since its last assessment.

"The near-term risk of a deep recession accompanied by rising unemployment — a major source of concern six months ago — is much lower from today’s perspective,” ECB vice-president Luis de Guindos said.

The Frankfurt-based institution said the economic outlook had been helped by falling inflation, which stood at 2.4 per cent in April, not far off its two-per cent target.

Expectations that the ECB will soon start cutting interest rates had also boosted investor confidence, said the central bank for the 20 nations that use the euro.

But de Guindos warned the outlook remained "fragile”.

"Geopolitical tensions are a significant source of risk for not only euro area financial stability but also global financial stability,” he said.

Increasing tensions could affect the supply of energy, fuel inflation and undermine economic confidence, the ECB said.

In addition, "global economic policy uncertainty remains high, as countries with more than half of the world’s population are sending their citizens to the polls in 2024,” it said.

Tight financial conditions continue to weigh on more vulnerable eurozone households, firms and governments, the review said.

Property markets, particularly the commercial sector, were also continuing to suffer from a downturn, it noted. — AFP