ECB President Christine Lagarde acknowledged in a speech that Eurozone faces “weaker prospects” in the near term. Survey data suggest slowing momentum, with higher tariffs and a stronger Euro expected to weigh on exports. Elevated uncertainty is also delaying corporate investment. Risks remain “tilted to the downside”, with trade tensions, fragile market sentiment, and geopolitical instability posing ongoing threats to the outlook.
Still, Lagarde emphasized several sources of resilience. A strong labor market, rising real incomes, and robust private sector balance sheets are expected to support consumption. Recent rate cuts are also contributing to easier financing conditions, while increased spending on defence and infrastructure could help offset external headwinds.
“A swift resolution to trade and geopolitical tensions or a further increase in defence and infrastructure spending could spur activity by more than expected,” Lagarde said.
On inflation, Lagarde noted the outlook is “more uncertain than usual.” Trade frictions are creating both upward and downward pressures—supply chain fragmentation could lift prices, while weaker global demand may suppress Eurozone export growth.
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