ECB President’s statement at IMF meeting highlights economic resilience and policy outlook

Christine Lagarde, President of the European Central Bank (ECB), delivered a statement at the fifty-fourth meeting of the International Monetary and Financial Committee.

She noted that the global economy has shown resilience despite high uncertainty, with risks tilted to the downside for growth and upside for inflation. The conflict in the Middle East continues to impact energy markets, while trade tensions and protectionism affect confidence. Investment in artificial intelligence supports activity and trade, especially in economies integrated into technology value chains.

Euro area economic activity remains resilient, with broad-based growth in the first half of 2026. The ECB projects growth of 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028. Domestic demand is expected to benefit from lower energy inflation and a resilient labor market, with growth supported by increased government spending and investment in AI and digital technologies. Export growth is expected to strengthen with foreign demand.

Uncertainty persists regarding the duration and impact of the Middle East conflict. Risks to growth are assessed as downside risks. Maintaining sound fiscal policies and ensuring that fiscal responses to energy shocks are temporary and targeted are emphasized. Policies to enhance resilience to climate change and structural reforms to improve labor participation and technological diffusion are also highlighted.

Inflation increased to 3.8% in September, mainly due to energy prices, with core inflation at 2.5%. Inflation is expected to remain above target into the first half of 2027, then gradually decline. Risks include geopolitical conflicts, energy pass-through, weather events, and market conditions.

The ECB increased key interest rates by 25 basis points in September, citing inflation outlook and economic data. Future policy will depend on incoming data and the reaction function, considering inflation risks and growth conditions. The Eurosystem is preparing to launch the digital euro and develop tokenized asset settlement capabilities, including a pilot in late 2027.

Financial stability risks remain high due to geopolitical tensions, fiscal challenges, AI adoption, and cyber risks. Euro area banks remain strong in capital, liquidity, and profitability. Vulnerabilities in non-bank financial sectors and private credit markets are noted, with limited immediate threat to stability.

Central bank money is evolving to meet digital economy needs, with plans for a digital euro pilot and development of a European tokenized ecosystem using distributed ledger technology. The Eurosystem emphasizes international cooperation, supporting IMF reviews and efforts to address global imbalances and climate-related risks.