Higher US tariffs won’t derail the euro-area economy, which is on the brink of a recovery, European Central Bank President Christine Lagarde said.
“Once there is certainty and it’s not going to be challenged and renegotiated a hundred times, I think that enterprises are going to deal with it,” Lagarde told Fox Business’s Mornings with Maria in an interview broadcast Monday. Higher levies will only have “a small impact” on gross domestic product, she said.
While the economy is “not thriving”, it’s “increasingly back to potential”, Lagarde said from Jackson Hole, Wyoming, where she attended the Federal Reserve’s annual symposium. “Growth is relatively modest but resilient and on its way up with the fundamentals such as consumption and investment looking good at the moment.”
Her comments support the idea that the recent trade deal between the European Union and the US isn’t causing major concerns among ECB policymakers. Lagarde herself has argued that the pact could have been much worse for the EU.
The ECB kept interest rates unchanged in July and looks increasingly likely to do so again next month, with Bundesbank President Joachim Nagel telling Bloomberg TV on Friday that there’s a “high bar” for further action following eight cuts to date.
Before the new tariffs took force, the 20-nation euro zone unexpectedly eked out growth in the second quarter, while August saw private-sector activity expand at the quickest pace in 15 months as manufacturers emerged from a three-year downturn.
Firmer growth momentum should help minimise the risk that inflation undershoots the ECB’s 2% medium-term goal. Consumer-price gains are currently predicted to average 2% in 2027 — the final year for which forecasts are available. Officials don’t expect major revisions when new quarterly projections are presented next month.
On inflation, Lagarde highlighted that the latest readings and the medium-term expectations are at 2%. “There will be more shocks, we know that, but we are in a good position,” she said. The ECB expects only “a very minor impact on inflation” from the trade deal, Lagarde said.
Source: theedgemalaysia