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ECB President Christine Lagarde told the IMF’s International Monetary and Financial Committee on October 17 that the euro area has remained resilient, but energy-market disruption poses risks to growth and inflation. She cited September inflation of 3.8% and the ECB’s recent rate increases, while saying the policy response would depend on incoming data.
European Central Bank President Christine Lagarde told the International Monetary and Financial Committee on October 17 that the euro area economy has so far remained resilient despite energy-market disruption and global uncertainty, while warning that the outlook carries downside risks to growth and upside risks to inflation. Her statement at the IMF Annual Meetings reported September euro area headline inflation at 3.8% and described the ECB’s recent interest-rate increases.
Lagarde said economic growth was broad-based across most euro area countries and sectors during the first half of 2026. The ECB staff projections published in September forecast growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. Those projections anticipate support from recovering real incomes as energy inflation eases, a resilient labour market, public spending on infrastructure and defence, and investment in artificial intelligence and digital technologies.
Inflation increased to 3.8% in September, Lagarde said, mostly because of a surge in energy inflation, with smaller contributions from food and services. Core inflation rose slightly to 2.5%, while underlying inflation measures were broadly stable. She said wages had not yet shown a material response to the energy shock. The ECB expects higher energy prices to keep headline inflation well above its target into the first half of 2027, before it declines and moves back toward target around the end of that year.
The ECB’s Governing Council raised its key interest rates by 25 basis points in September, following an increase of the same size in June, according to Lagarde. She said policymakers weigh the inflation outlook and its risks, underlying inflation dynamics, and the strength of monetary-policy transmission. The statement also said long-term interest rates had risen notably since the ECB’s last meeting, tightening financing conditions.
Energy Shock Shapes ECB Outlook
The statement links a geopolitical energy shock to two concerns facing households, businesses and policymakers: higher prices and weaker growth. If energy costs remain elevated, they can directly lift household bills and production expenses. Lagarde warned that a more intense or longer-lasting shock could also feed into other prices and wages, making inflation more persistent.
For the euro area, that creates a difficult policy balance. Higher interest rates can restrain inflation, but tighter financing conditions can also weigh on demand and investment. Lagarde said the shock was too large for the ECB to ignore, while describing a measured response as appropriate. The statement does not announce a new rate decision; it explains the approach guiding future decisions.
The growth projections also matter because they set out a modest expected expansion rather than a forecast of rapid recovery. Lagarde said the outlook depends partly on how the Middle East conflict develops and how its effects spread through the economy. The projections are ECB staff estimates, not guarantees of future outcomes.
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Rate Decisions and Growth Forecasts
The statement was delivered at the 54th meeting of the IMF’s International Monetary and Financial Committee during the IMF Annual Meetings. It reviews international conditions as well as the euro area outlook. Lagarde pointed to trade tensions and protectionist measures as drags on confidence, while saying investment linked to artificial intelligence had supported activity and trade, particularly in economies connected to technology supply chains.
On monetary policy, the statement sets out the rationale for the June and September rate increases and the framework the Governing Council says it will use going forward. Lagarde said decisions would be based on incoming economic and financial data, underlying inflation and the effect of monetary policy on the economy. She also noted that the ECB’s enhanced EUREP repo facility for central banks had been prepared for onboarding in July, with more than 30 central banks expressing interest over the preceding six months.
Lagarde also called for sound public finances, adherence to fiscal rules and, in highly indebted countries, measures to rebuild fiscal buffers. She said any government response to the energy shock should be temporary and targeted. These remarks describe her policy recommendations to the committee, rather than new fiscal decisions by national governments.
“The global economy has proven surprisingly resilient in the face of high uncertainty.”
— Christine Lagarde, ECB president, in her statement to the IMFC
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Conflict and Price Pass-Through
The duration and intensity of the Middle East conflict, and the extent to which energy-price increases spread to other goods, services and wages, remain uncertain. Lagarde said the ECB had not yet seen evidence of significant pass-through beyond what was already included in its projections. That assessment could change as new data arrive.
The statement identifies risks in both directions for inflation. A more persistent energy shock or extreme weather could push prices higher, while a sustainable resolution of geopolitical conflicts or weaker energy pass-through could reduce inflation. The statement does not quantify the likelihood of these scenarios or provide a revised forecast beyond the September staff projections.
It is also unclear from the statement how the Governing Council will adjust interest rates at its next meeting. Lagarde did not announce a future decision or give a specific path for rates; she said policy would be based on a comprehensive assessment of incoming data.
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Incoming Data to Guide Rates
The ECB’s next monetary-policy decisions will depend on new information about inflation, underlying price pressures and how strongly earlier rate increases are affecting financing conditions and economic activity. Lagarde said the Governing Council would apply its reaction function to that evidence rather than set policy in advance.
For the economic outlook, energy prices and developments in the Middle East remain key factors to watch, alongside wage data and food and services inflation. The ECB’s September projections anticipate inflation easing toward target around the end of 2027, but the statement makes clear that this path depends on how the energy shock develops.
energy shock impact analysis tools
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Key Questions
What did Christine Lagarde tell the IMFC?
She said the euro area economy had remained resilient but faced growth risks from global uncertainty and inflation risks from energy-market disruption. She also described the ECB’s recent rate increases and its data-dependent approach to future decisions.
What was euro area inflation in September 2026?
Lagarde reported that headline inflation rose to 3.8% in September, mostly reflecting higher energy inflation. Core inflation increased slightly to 2.5%.
Did Lagarde announce a new interest-rate decision?
No. The statement reported that the ECB raised rates by 25 basis points in June and by another 25 basis points in September. It did not announce a new decision or specify the timing of future rate changes.
What growth does the ECB forecast for the euro area?
ECB staff projections published in September forecast growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. These are projections, and the statement says the outlook is subject to uncertainty.
Source: primary
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