Price worries have given way to concerns about Europe’s ailing economy and ongoing political instability, most notably in France and Germany, judging from the pronouncements of top European Central Bank (ECB) officials in recent days.
ECB chief Christine Lagarde spent a lot of her press conference in the wake of Thursday’s rate decision pointing to the growing strains on the economy and how inflation is now coming down quicker than expected.
“The recovery is slower than expected,” Ms Lagarde said, citing weak investment and export performance, while warning the risk to growth remain tilted to the downside. “Trade frictions, geopolitical tensions and the lagged effects of monetary policy tightening could weigh further on growth,” she said.
In a blog after the ECB’s decision Irish Central Bank governor Gabriel Makhlouf noted the economic outlook remains subject to a lot of uncertainty.
“In particular a rise in geopolitical tensions – from ongoing conflicts or a change in the environment for international trade – could have adverse effects for the euro area economy,” he said.
French borrowing costs have soared due to political instability following the collapse of Michel Barnier’s short-lived government last week
Data published Friday showed euro zone industrial production flatlined in October – a bad omen for the final quarter of 2024. There were also gloomy projections from the Bundesbank, which reckons the region’s biggest economy will hardly grow in 2025 after shrinking again this year.
The ECB lowered its forecasts for growth in the region, predicting just 1.1 per cent for next year. That projection does not even include the potential drag from Donald Trump’s US trade policy nor the does it account for the political upheaval in Germany and France.
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