The euro-zone economy is likely to see slower growth this quarter, with question marks over global trade remaining despite recent deals with the US reducing uncertainty, European Central Bank President Christine Lagarde said.
Speaking in Geneva, Lagarde said the 15% tariff now in place for most European goods is a little above the level the ECB assumed in June but “well below” a severe scenario it had also mapped out.
“Recent trade deals have alleviated, but certainly not eliminated, global uncertainty, which persists on account of the unpredictable policy environment,” she said Wednesday. “Uncertainty persists as sector-specific tariffs on pharmaceuticals and semiconductors remain unclear.”
Rates pause expected to continue
The comments are Lagarde’s first since the European Union struck its pact with President Donald Trump. ECB officials are expected to leave the deposit rate at 2% when they reconvene in September after their summer break, extending a pause that began last month following a yearlong campaign of cuts.
Most policymakers see interest rates in a good place, at a level that neither restricts nor supports economic activity. Some, though, have suggested further reductions shouldn’t be excluded.
“ECB staff will factor the implications of the EU-US trade deal for the euro-area economy into the upcoming September projections, which will guide our decisions over the coming months,” Lagarde said.
The euro zone’s 20-nation economy unexpectedly expanded by 0.1% in the second quarter, showing resilience in the face of trade and geopolitical stress. Inflation is hovering around the ECB’s 2% target.
“The euro-area economy proved resilient earlier this year in the face of a challenging global environment,” said Lagarde, who spoke at a meeting of the World Economic Forum’s International Business Council.
While having quelled talk that she’ll cut short her spell at the ECB to head the WEF, recent media reports suggest she’ll make that move once she leaves her post in Frankfurt in 2027. A spokesperson for the WEF declined to comment.