ECB’s Lagarde: Geopolitical tensions posts downside risk to growth, upside to inflation

At the post-meeting press conference, ECB President Christine Lagarde noted that risk to growth are “tilted to the downside”, with geopolitical tensions potentially shaking confidence among businesses and households.

On the other hand, growth could be higher if resilient labour market continue its course and real incomes rise. The world economy could grow “more strongerly than expected.

Lagarde also flagged potential upward risks on inflation from sources like escalating energy and food prices. She underscored the role geopolitical tensions might play in boosting short-term energy prices, while also drawing attention to the repercussions of the climate crisis, which could lead to unexpected hikes in food prices.

However, she also acknowledged scenarios where inflationary pressures could diminish, particularly if there’s a decline in demand. This could be due to factors such as a more pronounced impact of monetary policy or external economic challenges fueled by heightened geopolitical risks.