Lagarde: “Europe, Slow Recovery and Stagnation,” to New Rate Cuts
The President of the European Central Bank also spoke about the need for an integrated capital market
Christine Lagarde, president of the European Central Bank (ECB), painted a bleak picture in her first speech to the renewed European Parliament. The good news is that the data confirms lower inflation, which should lead to further easing of monetary policy.
“Economic activity has been slow to recover since the end of the pandemic. The recovery from the pandemic allowed the eurozone economy to grow in the first nine months of 2022, but economic activity remained largely stagnant thereafter. This was due to, among other things, the shock to energy prices, as well as the tightening of our monetary policy,” Lagarde explained.
The beginning of 2024 was characterized by timid growth in the eurozone economy: 0.3% in the first quarter and 0.2% in the second quarter. “However,” explains the ECB head, “growth in the second quarter was mainly driven by exports and government consumption. Domestic demand remained weak as households reduced consumption, enterprises reduced business investment, and real estate investment declined. The service sector is holding up, while activity in manufacturing and construction remains weak.”
The latest forecasts anticipate growth at 0.8% in 2024, 1.3% in 2025, and 1.5% in 2026.
The good news comes from the labor market that is considered “robust:” the unemployment rate was 6.4% in July, virtually unchanged over the past year. Inflation has also performed well, falling to 2.2% in August 2024 and is expected to continue to fall, especially due to lower energy costs.
“Recent developments reinforce our confidence that inflation will return to target in a timely manner. We will take this into account at the next monetary policy meeting in October,” concluded Lagarde, who also mentioned what Europe must do to become globally competitive again. This requires further integration of “our fragmented markets and thereby contribute to risk diversification and shock absorption in the EU. This will support financial stability and facilitate the transmission of monetary policy.”
An integrated single capital market will also contribute to some key EU objectives, such as financing the green and digital transition, the possibility of higher returns, and increased funding for young and innovative companies.
