ISTOCK

Europe's suddenly slowing economy, triggered by trade disputes and limp domestic demand, could complicated the European Central Bank's plans to tighten monetary policy later this year, according to a former German central banker now chairing Switzerland's biggest bank.

UBS Group AG (UBS) chairman Axel Weber, who served as Germany's central bank president for seven years, told a panel at the World Economic Forum in Davos that ultra-low interest rates from global central banks likely won't be normalized until the next economic cycle. His view was echoed by Bridgewater Associates chairman Ray Dalio, who noted that "significantly slower" growth rates in the U.S. and Europe would like mean policy easing from central banks in Frankfurt, Washington and Beijing over the next two years.

The ECB ended its controversial quantitative easing program in December, after amassing more than €2.6 trillion in government, corporate and agency bonds over its near four-year tenor in an effort to stoke inflation in Europe's moribund economy.

The Bank has also kept a negative rate on one of its key deposit facilities, and held its key lending rate at near zero, as part of its broader effort to bring inflation closer to its 'just below 2%' target sometime late next year.

ECB President Mario Draghi, who is set to retire after eight years at the helm in Frankfurt later this fall, has indicated that he and his colleagues on the Governing Council -- the equivalent to the Federal Reserve's Open Markets Committee -- would like to start 'normalizing' interest rates by late summer.

However, Draghi told lawmakers in the European Parliament in Strasbourg last week that ""a significant amount of monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term," a view that was reflected in the International Monetary Fund's recent downgrade of the global economy.

The euro has fallen around 1.6% against the U.S. dollar since Draghi's comments in Strasbourg, as investors pare bets on the ECB's ambition to lift at least one of its interest rates later this year, with the decline accelerated by the weakest German economic growth in a least five years. 

The Stoxx Europe 600 Banks index, the sector benchmark, fell 1.2% Tuesday to extend its six month decline to around 16.1%, helped in part by record lows for German lender Deutsche Bank (DB) , which was marked 2.94% lower in Frankfurt today at €7.74 each.

The ECB is slated to meet Thursday for its first policy meeting of the year, and may analysts are now asking if Draghi and his colleagues are prepared to change tack now that Germany is staring down the barrel of recession, China growth as slowed to the weakest pace in nearly 30 years and the IMF is calling out Europe as a key global risk.

ING's chief Germany economist, Carsten Brzeski, however, isn't one of them, arguing the bank can "play for time" with dovish forward guidance before retreating to a crisis-mode reaction to the recent data.

"Admittedly, data releases since the December meeting have done little to stop fears of a more prolonged slowdown of the Eurozone economy," he said. "Confidence indicators are still plunging, hard data remains weak and latest Brexit developments suggest that new turbulence in both financial markets and the real economy is still on the horizon."

"At the same time, however, the jury is still out on whether the current slowdown is the result of one-off, temporary, factors or rather the start of a structural slowdown," he argued. "While domestic demand in the Eurozone is still holding up well and low inflation and dropping unemployment bode well for consumption growth this year, increased uncertainty stemming from trade conflicts, China and Brexit could easily feed into a negative sentiment loop."