Downward Risks to Growth Highlighted by ECB President

European Central Bank (ECB) President Christine Lagarde expressed concerns on Thursday about the potential for economic growth to be hindered. She pointed to ongoing trade tensions, geopolitical uncertainties, and a delayed impact of monetary policy tightening as key factors contributing to this outlook. Despite these challenges, Lagarde suggested that domestic consumption and investment could see a boost from lower interest rates and reduced inflation, potentially offsetting some of the negative pressures.

Impact on Inflation and the Euro

Lagarde also addressed the impact of trade disputes on the euro area's inflation outlook. She noted that the depreciation of the euro and increased import costs are direct consequences of these tensions. Conversely, she mentioned that reduced demand for Eurozone exports, due to tariffs and the shifting of exports from countries with excess capacity, could lead to downward pressure on prices. Additionally, increased spending on defense and infrastructure could have a positive effect on inflation by boosting aggregate demand. However, Lagarde cautioned that monetary policy might have a more significant dampening effect on demand than currently anticipated.