ECB President Christine Lagarde speaks to journalists in Frankfurt
Eurozone economic growth could be weaker in the coming months and risks of a deterioration in the medium-term outlook dominate, Christine Lagarde, president of the European Central Bank (ECB), told a hearing parliamentarian on Wednesday.
The eurozone economy has virtually stagnated over the past 18 months, and the long-awaited recovery is now also threatened by the political crisis in France.
Asked to say whether the ECB would intervene to help France in the event of worsening market turbulence, Christine Lagarde did not respond directly to the question asked. She simply stated that financial stability was a relevant factor for price stability, the ECB's main mandate.
“Price stability and financial stability are linked. Without one, there is no other,” she told the European Parliament's Economic and Monetary Affairs Committee in Brussels.
Christine Lagarde added that the ECB was “focused” on its inflation mandate and had several tools at its disposal, including the Transmission Protection Instrument (IPT), which allows the bank to buy bonds of euro zone countries in unlimited quantities in the event of an increase deemed unjustified and disorderly in their borrowing costs.
France's borrowing costs have risen in recent weeks and a fall of Michel Barnier's government could push them higher, leading investors to question the ECB's potential role.
But it is unlikely that France will benefit from aid because market movements are currently neither disorderly nor unjustified, while France is the subject of an excessive deficit procedure.
Regarding the broader economy, Christine Lagarde said growth would be weak in the short term and the longer-term outlook was uncertain.
-“Survey data suggests that growth will be weaker in the near term, due to slower growth in the services sector and continued contraction in manufacturing,” she said.
“The medium-term economic outlook is uncertain and dominated by risks,” she added. “Geopolitical risks are high, with increasing threats to international trade,” she also noted.
Given the open nature of the European Union, trade barriers pose a threat to manufacturing and investment, she also explained.
Christine Lagarde believes, however, that a recovery remains possible thanks to the increase in investment and consumer spending, against a backdrop of an increase in real income.
Inflation, which is currently just above the ECB's 2% target, could accelerate again in the last quarter of this year, before returning to the bank's target next year. assured Christine Lagarde, reiterating her price forecasts.
The next ECB meeting is scheduled for December 12 and economists mostly expect a further rate cut of 25 basis points, which would be the fourth in the cycle of monetary easing that began in June.
Christine Lagarde did not seek to temper or confirm these forecasts, simply stating that the bank would follow a meeting-by-meeting approach based on new data.
(Reporting by Balazs Koranyi; French version by Claude Chendjou, edited by Kate Entringer)
