“The economic outlook is clouded by an exceptional level of uncertainty,” These words, spoken by Christine Lagarde, President of the European Central Bank, during the press conference at the end of the Governing Council which decided to reduce interest rates by 25 basis points, reflect a complex reality for theglobal economy, crushed between geopolitical and commercial tensions, fluctuating markets and a growth that seems to be travelling with the handbrake on. But despite everything, Lagarde shows optimism: "The disinflation process is well underway", she declared, underlining how inflation – both the general and the “core” one – continued to fall in March.
Even services inflation is finally showing signs of slowing down, and the growth of wages seems to be gradually slowing down. In short, the first signs of normality seem to be appearing on the Old Continent, so much so that Lagarde reiterated: "Most measures of core inflation suggest that inflation will stabilize around our 2% target over the medium term".
The European Economy Between Resilience and Obstacles
Despite the drop in inflation let's breathe a sigh of relief, the economic picture remains far from free of pitfalls. On the effect of trade tariffs, "we know it's a negative demand shock and we can anticipate that it will have some impact on growth. But the net impact on inflation will only become clear over time and there are all sorts of divergent views on the short term and the long-term impact."
The President acknowledged, however, that, despite everything, "the euro area economy has built a certain resilience against global shocks".occupation remains strong – “The unemployment rate fell to 6,1% in February, the lowest level since the introduction of the euro” – and themanufacturing industry, after difficult months, is showing signs of stabilization.
And while Europe is dealing with wars, tariffs and climate change, Lagarde also launched a warning: it is time to push on structural reforms, investments in defense e infrastructure and – yes, also on digital – including preparation for a possible digital euro.
Inflation down, but watch out for risks: tariffs impact growth
While inflation seems to be falling, there are still many clouds on the horizon. Lagarde did not hide it: "The risks to economic growth have increased”, he warned, pointing the finger at the trade war triggered by Trump, which could weigh on exports, investments e consumption.
Not only trade and consumption. According to Lagarde, also themarket mood is getting worse: “The deterioration in sentiment in financial markets could lead to tighter financing conditions, increase risk aversion and make firms and households less willing to invest and consume.”
On the geopolitical front, there is no shortage of unknowns: “Geopolitical tensions, such as the unjustified war of Russia against theUkraine and the tragic conflict in Middle East, remain a major source of uncertainty,” he added.
On the price front, the ECB does not rule out that further falls in energy prices and a stronger euro could push theinflation even lower. But be careful: higher duties, bottlenecks in supply chains and even extreme weather events could make it rise again, like in an eternal ping-pong between upward and downward risks. "At the same time, an increase in defense and infrastructure spending would contribute to growth,” the ECB chief stressed, warning that such spending “could also help keep inflation at high levels in the medium term.”
Lower rates, (perhaps) lighter mortgages
The ECB's decisions have already begun to be felt on the markets. interest rates without risk they went down, companies found somewhat more favorable conditions for financing, and even the mortgages – after months of increases – have shown some timid signs of easing. “The average rate on new loans to businesses fell to 4,1% in February,” Lagarde confirmed.
And for the families? Here too, some timid signals: mortgages have settled at 3,3% on average, and the demand for credit by private individuals has started to grow again. It won't be the end of the hard times, but there is a small glimmer of hope.
More Rate Cuts Coming? No Promises, Just Caution
The ECB does not commit itself on what will happen to rates in the coming months. Lagarde reiterated this several times: “We are not pre-setting a path for rates. In particular,” she explained, “the Governing Council’s decisions on interest rates will be based on its assessment of the inflation outlook, given new economic and financial data, the dynamics of underlying inflation and the intensity of monetary policy transmission, without being tied to a particular path for rates.” In short: each decision will be taken meeting by meeting, with the data in hand, without automatic mechanisms.
The President does not close the door, but she is covering her back: “In any case, we are ready to adjust all our instruments, within our mandate, to ensure that inflation stabilizes sustainably towards our objective in the medium term”.
