ECB’s Lagarde not pessimistic about short term outlook

In an interview with La Tribune Dimanche, fielding the topic of a possible recession risk in Europe, ECB President Christine Lagarde didn’t offer a direct response but instead focused on the preparations and countermeasures Europe has adopted. She highlighted, “This allows us to look towards the coming winter, if not calmly, then at least with a lot more confidence,” emphasizing the role of the Next Generation EU program, structural reforms, and the replenishment of over 90% of gas reserves.

Germany, a powerhouse of the European economy, was also discussed. Lagarde candidly noted that Germany’s previously successful economic model, which leveraged cheap energy supplies and significant export opportunities, especially to China, is undergoing transformation. She admitted that Germany is “one of the factors that is indeed weighing on the outlook for European growth.”

In addressing concerns about whether the ECB harbors a pessimistic view on the short-term economic horizon for Europe, Lagarde was clear, stating, “There are three reasons why we are not pessimistic.” She pointed to an expected rise in growth figures next year, a significant reduction in inflation, and a historically high employment rate in Europe that seems to be holding steady.

However, one of the challenges the European businesses face revolves around salary negotiations and wage structures. Lagarde posed, “The big question right now concerns businesses. Will they accept absorbing part of the salary increases that will be negotiated this year and next in their margins – which didn’t change much in 2022?”

Full interview of ECB Lagarde here.