ECB’s Lagarde: Eurozone Growth Faces Downward Pressure With Downside Risks

ECB President Christine Lagarde, during her speech at IMF annual meetings, highlighted the weakening activity in the Eurozone’s economy in Q3 due to slower with risks lean more towards the downside ahead. Lagarde expects continued decline in inflation, but the path has risks on both sides. She also reiterated that current interest rate would bring inflation down to target is maintained for “sufficiently long duration”.

She noted, “Incoming data suggest that activity has been weak in the third quarter,” attributing this to “slower global demand and the impact of tighter financing conditions.”

Lagarde noted that the “risks to the outlook continue to be tilted to the downside,” while also acknowledging the possibility that factors like a “strong labour market, rising real incomes, and receding uncertainty” could uplift growth.

On the inflation front, Lagarde expects decline in Eurozone, driven by “easing cost pressures” and the influence of tighter monetary policy. But, “the downward path has risks in both directions.” While upward risks could emanate from factors such as “renewed upward energy and food cost pressures,” potential downside risks could arise from “weaker demand” or a deteriorating international economic environment.

Lagarde also reiterated ECB’s stance on interest rates: “we consider that our key interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target.”

Full speech of ECB Lagarde here.