European Central Bank (ECB) President Christine Lagarde stated that the European economy is on a weak trajectory and high inflation is expected to persist for an extended period. Following the ECB’s decision to maintain its policy rates, Lagarde made significant announcements during a press conference held in the Greek capital, Athens.
“We believe that the continuation of interest rates at current levels for an extended period will significantly contribute to the return of inflation to targeted levels. Our future decisions will continue to maintain policy interest rates at accommodative levels.”Christine Lagarde
Despite the current weak state of the European economy, Lagarde also stated, “Despite the decrease in inflation in the Eurozone, we expect the economy to strengthen in the coming years due to a recovery in household incomes and increased demand stemming from exports.” However, Lagarde highlighted that inflation still remains at high levels and mentioned the expectation of further decreases in the future, primarily influenced by declines in energy and food prices.
Inflation Could Remain High for a Prolonged Period
Lagarde stated, ‘It is expected that inflation will remain high for an extended period, and domestic price pressures are expected to remain strong.’ Additionally, emphasizing the impact of high interest rates on the economy, she said, ‘There is a high probability of the economy remaining weak for the rest of this year, but we observe household incomes recovering along with the decrease in inflation.’
Highlighting a reduction in the effects of the energy crisis and the need for governments to continue reducing public support for energy costs, Lagarde said, ‘This is necessary to reduce medium-term inflationary pressures and implement a tighter monetary policy.’
Lagarde also mentioned, ‘Even though long-term inflation expectations remain around 2 percent, some indicators persist at high levels. The global economy is displaying a weak outlook,’ noting that the war in Ukraine and the Middle East creates geopolitical risks. She added that these risks could lead to a loss of confidence, increased uncertainty, and further reductions in growth.”