ECB President Christine Lagarde said Thursday that the euro zone economy is expected to remain moderate in the coming months and notes that labor market momentum is slowing, especially in services.
At a press conference, after the meeting of the Council of Governors that decided on a new increase in interest rates of 25 basis points, the head of the ECB explained that the economy stagnated during the first half of the year and pointed out that most indicators recent “suggest it was also weak in the third quarter.”
“Lower demand for eurozone exports and the impact of tight financial conditions are holding back growth, especially through reduced residential and business investment,” he said.
The president of the ECB highlighted that “the services sector, which until now had been resilient, is now also weakening.”
“The economy is likely to remain subdued in the coming months,” he said, adding, however, that “over time, economic dynamics should accelerate as real incomes are expected to rise, supported by declining inflation, an increase in wages and strong inflation. labor market, which will support private consumption.”
Lagarde also highlighted that the labor market has remained resilient so far, despite the economic slowdown, although she admitted that although employment grew 0.2% in the second quarter, “momentum is slowing.”
“The services sector, which has been a major driver of job growth since mid-2022, is now also creating fewer jobs,” he noted.
The president of the ECB once again defended that as the energy crisis dissipates, “governments must continue to reduce support measures.”
“It is essential to avoid rising inflationary pressures in the medium term, which would otherwise require an even stronger monetary policy response,” he argued.
According to Lagarde, growth could be slower if the effects of monetary policy are stronger than expected, or if the global economy weakens, for example due to a new slowdown in China.
“On the other hand, growth could be stronger than expected if the strong labor market, rising real incomes and reduced uncertainty mean people and businesses are more confident and spend more,” he said.
Upside risks to inflation include possible upward pressures on energy and food costs, also warning of the impact of adverse weather conditions and the evolution of the climate crisis.
“A lasting rise in inflation expectations above our target, or higher-than-expected increases in wages or profit margins, could also increase inflation, even in the medium term,” it warned.
On the other hand, “weaker demand – for example due to higher monetary policy transmission or a worsening economic environment outside the euro area – would lead to lower price pressures, especially in the medium term,” he said. .
Source: TSF
