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Christine Lagarde told the International Monetary and Financial Committee on Oct. 17 that the euro area had remained resilient but faced downside growth risks and rising inflation pressures from the Middle East energy shock. She cited ECB staff projections of 0.9% growth in 2026 and said the Governing Council had raised rates by 25 basis points in both June and September.
European Central Bank President Christine Lagarde told the International Monetary and Financial Committee on Oct. 17 that the euro area economy had proved resilient despite geopolitical and trade pressures, while warning that the Middle East conflict and its effect on energy prices had raised inflation risks. Her statement also reported that the ECB raised its key interest rates by 25 basis points in September, following an equal increase in June.
Lagarde’s statement, delivered at the 54th meeting of the IMFC during the IMF Annual Meetings, described a global economy holding up amid high uncertainty. She said investment in artificial intelligence had supported activity and trade, particularly in economies linked to technology supply chains. At the same time, conflict in the Middle East was driving sharp energy-market swings, while trade tensions and protectionist measures were affecting confidence and reshaping trade flows.
For the euro area, Lagarde cited the ECB staff’s September projections: growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. Growth was broad-based across most euro area countries and sectors in the first half of 2026, according to the statement. The projections anticipate support from recovering real incomes as energy inflation eases, a resilient labour market, public investment in infrastructure and defence, and spending on AI and digital technology. Lagarde said the outlook remained subject to uncertainty over the intensity and duration of the Middle East conflict.
Inflation data and the ECB’s policy response were central to the address. The statement said headline inflation rose to 3.8% in September, mostly reflecting higher energy inflation, with food and services also contributing. Core inflation was 2.5%. Lagarde said higher energy prices were expected to keep headline inflation well above the ECB’s target into the first half of 2027, before it declines toward target around the end of that year. The ECB’s Governing Council raised its key rates by 25 basis points in June and again in September; Lagarde said future decisions would depend on incoming data and the bank’s policy assessment.
Energy Prices Shape ECB Policy
The statement matters because it links a geopolitical shock to both household price pressures and the path of euro area interest rates. Higher energy costs can raise inflation directly, while the ECB is watching for whether they spread into food, services, wages and other prices. Lagarde said the shock was too large for policymakers to ignore, but that a measured response remained appropriate.
For borrowers, businesses and governments, the outlook combines continued inflation risk with the possibility that tighter financing conditions will restrain growth. Lagarde said long-term interest rates had risen notably since the ECB’s previous meeting, a development she said would slow activity and reduce price pass-through compared with the September projections. She also urged governments to keep any energy-related fiscal response temporary and targeted, and to maintain sound public finances.
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ECB Outlook and Rate Decisions
The address was part of the IMF Annual Meetings and was made to the International Monetary and Financial Committee, the committee’s forum for discussing the international monetary and financial system. It was an account of the ECB president’s assessment and policy approach, not a new set of ECB staff forecasts: the growth numbers cited came from the bank’s September projections.
Lagarde said the Governing Council evaluates three areas when setting rates: its inflation outlook and associated risks, underlying inflation dynamics, and the strength of monetary policy transmission. She also reported that in July the council had decided on operational arrangements for the enhanced Eurosystem repo facility for central banks, known as EUREP. More than 30 central banks had expressed interest in the facility over the preceding six months, according to her statement.
“The global economy has proven surprisingly resilient in the face of high uncertainty.”
— Christine Lagarde, ECB president, in her IMFC statement
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Conflict Duration and Price Pass-Through
The statement does not establish how long or how intensely the Middle East conflict will continue, or how far energy-market shocks will spread through the economy. Lagarde said the scale of those effects remained uncertain. She reported no evidence at that stage of significant energy-price pass-through to other prices and wages beyond what the ECB had already included in its projections.
The inflation and growth paths are projections, not confirmed outcomes. Lagarde identified a more intense or persistent energy shock as an upside risk to inflation and a downside risk to growth. The statement also noted countervailing possibilities, including weaker energy-price pass-through or a sustainable resolution of geopolitical conflicts. It does not specify the size or timing of future rate changes.
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Incoming Data Will Guide Rates
The ECB Governing Council’s next policy decisions will depend on incoming economic and financial data, including energy prices, underlying inflation and the effects of tighter financing conditions. Lagarde said the council would make a comprehensive assessment using its established reaction function; the statement did not announce a date or outcome for a future rate decision.
Over the coming months, the developments to watch include whether energy inflation begins to ease, whether price pressures spread beyond energy, and whether growth tracks the ECB’s September projections. The statement also points to fiscal policy choices and the duration of the Middle East conflict as factors that could alter the outlook.
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Key Questions
What did Christine Lagarde say in her IMFC statement?
She said the euro area economy had remained resilient but faced downside risks to growth and upside risks to inflation, particularly from energy-market disruption linked to the Middle East conflict. She also outlined recent ECB rate increases and the bank’s approach to future decisions.
What growth does the ECB project for the euro area?
The September ECB staff projections cited by Lagarde forecast growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. These are projections, not reported final growth results.
Why did euro area inflation rise in September?
Lagarde’s statement said headline inflation increased to 3.8%, mostly because of a surge in energy inflation, with smaller contributions from food and services inflation. Core inflation reached 2.5%.
Did the ECB announce another rate increase?
No future increase was announced in the statement. Lagarde said the ECB raised rates by 25 basis points in June and 25 basis points in September, and that future decisions would be based on incoming data and the bank’s assessment.
Source: primary
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