Christine Lagarde stated that the impact of Trump’s trade war on growth and inflation in the Eurozone was also mitigated by a stronger euro and the completion of a trade agreement with Trump, which limited tariffs to 15% and removed uncertainty threatening to delay or halt business investment.
“A year ago, most would have assumed that US tariffs would trigger a significant adverse shock to the Eurozone economy,” said Lagarde during a speech at a central bank conference in Helsinki, Finland. “However, some of these assumptions did not materialize,” she noted.
There was little impact on inflation, according to the official, and the effects on growth were “relatively moderate” due to pro-growth measures adopted by European governments in response.
Lagarde also highlighted in her speech that with interest rates at 2%, the central bank is “well positioned to respond if inflation risks change or if new shocks emerge” that threaten the target.
“We cannot commit to any future path for interest rates, whether through action or inaction. We need to remain agile and ready to respond to data as they arrive,” added the ECB president.
Lagarde suggested that the central bank believes interest rates at 2% are appropriate at this time and that no change is necessary.
