The ECB conference after the interest decision made today is about to begin. We will provide with you the most important comments made by President Lagarde regarding current economic situation, future forecasts etc.
You can watch the conference by yourself here:
Summary:
In summary, Christine Lagarde's narrative remains neutral and reaffirms the current level of monetary policy in the Eurozone. The ECB expects a slightly more dynamic rebound in economic activity in the Eurozone, mainly due to greater consumer confidence, real wage growth, and a decline in the very conservative savings rate. The outlook for inflation, while stable, remains uncertain as rising pressure in services is offset by falling prices for goods. The EURUSD exchange rate retreated slightly after a strong breakout triggered by a much lower-than-expected US inflation reading.
Inflation in the euro area is expected to stabilize around 2% in the medium term, with forecasts revised up due to a slower decline in services inflation. Economic growth remains resilient, supported by strong private consumption and investment, while exports—especially in chemicals—have improved. The labor market is solid, but labor demand has weakened, and business investment remains subdued due to ongoing disruptions from trade adjustments. The ECB unanimously decided to keep interest rates unchanged, emphasizing that monetary policy remains appropriate amid high uncertainty, and markets now price in a 40% chance of a rate hike by March 2027. Risks to inflation and growth persist, with trade tensions easing but financial market sentiment fragile, and potential shocks could still impact both inflation and financial conditions.
Key comments:
- The latest data and projections confirm that inflation should stabilize at 2% in the medium term (2026: 1.9%, 2027: 1.8%, 2028: 2%). The upward revision of the forecasts was influenced by expectations of a slower decline in services inflation.
- Forward-looking indicators suggest wage growth to ease.
- Trade tensions have eased, but sentiment in financial markets remains fragile and could lead to tighter financial conditions, especially in the event of a supply shock.
- The outlook for inflation continues to be more uncertain than usual. Inflation may fall below forecasts if tariffs reduce demand for goods from the eurozone and economies with excess capacity (e.g., China) increase exports. Damage to supply as a result of trade fragmentation could, in turn, push up inflation.
- Economic growth in the eurozone remained resilient (0.3% q/q), supported by stronger private consumption and investment. Exports improved, particularly in chemicals.
- Activity in services increased, while industrial production remained essentially flat.
- The labor market remains solid, although labor demand has weakened. Rising real incomes should support consumption, along with a decline in the savings rate, which currently remains at post-COVID levels.
- Business investment remains weak, mainly due to ongoing disruptions in foreign trade (adjustment to tariffs).
- Spending on defense and infrastructure, as well as reforms to boost productivity, could lift economic growth above expectations.
- The decision to maintain interest rates was unanimous, and according to the ECB, monetary policy remains appropriate.
- We don't target the exchange rate. We simply cannot offer forward guidance given the uncertainty.
- Markets price in a 40% chance of ECB rate hike by March 2027, down from high of 50% right after the ECB statement.
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