TL;DR
Christine Lagarde told the IMF’s International Monetary and Financial Committee on October 17 that the euro-area economy had remained resilient, while the Middle East conflict and energy-market volatility posed risks to growth and inflation. She cited September inflation of 3.8% and said the ECB would continue to set rates using incoming data and its stated reaction function.
European Central Bank President Christine Lagarde told the International Monetary and Financial Committee on October 17 that the euro-area economy had shown resilience despite an energy shock and geopolitical uncertainty, while warning that risks to growth and inflation remained. Her statement set out the ECB’s latest outlook and said monetary-policy decisions would continue to depend on incoming data and the bank’s assessment of inflation and policy transmission.
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Lagarde said the September ECB staff projections put euro-area growth at 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. She described activity in the first half of 2026 as broad-based across most euro-area countries and sectors. The projections anticipate support from domestic demand as real incomes recover, as well as government infrastructure and defence spending and investment in artificial intelligence and digital technologies.
Inflation had risen: headline inflation reached 3.8% in September, which Lagarde said was mostly due to a surge in energy inflation, with smaller contributions from food and services. Core inflation rose slightly to 2.5%. She said underlying inflation measures were broadly stable and wages had not yet shown a material response to the energy shock.
The statement said higher energy prices were expected to keep headline inflation well above the ECB’s target into the first half of 2027, before it gradually declined toward the target around the end of that year. Lagarde also noted that the ECB Governing Council raised its key interest rates by 25 basis points in September, following a rise of the same size in June. She said the bank would weigh the inflation outlook, underlying inflation and the strength of monetary-policy transmission when making future decisions.
Energy Shock Tests ECB Policy
The statement sets out the policy challenge facing the ECB: energy costs are pushing inflation higher, while tighter financing conditions could weigh on economic activity. Lagarde said the shock was too large for policymakers simply to ignore, but that a measured response remained appropriate. The balance matters to households and businesses because interest-rate decisions affect borrowing costs, while energy-price increases can feed into prices more broadly.
Lagarde said there was not yet evidence of significant energy-price pass-through to other prices and wages beyond what the ECB had already included in its projections. She also said long-term interest rates had risen notably since the bank’s previous meeting, a development expected to slow growth and reduce price pass-through more than projected in September. Those assessments are the ECB president’s account of current conditions, not a guarantee about how inflation or economic activity will develop.
For governments, the statement links the immediate energy response to longer-term fiscal concerns. Lagarde called for any fiscal measures addressing the shock to be temporary, targeted and tailored, and said countries with high debt should consolidate, reprioritise spending and improve public-finance efficiency to rebuild buffers.
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The ECB’s September Decisions
Lagarde delivered the statement at the 54th meeting of the International Monetary and Financial Committee during the IMF Annual Meetings. The committee is an international forum where policymakers discuss the global economy and financial system. Her remarks covered global conditions as well as the euro-area outlook, placing the region’s energy and inflation pressures alongside trade tensions and the conflict in the Middle East.
The ECB’s September rate increase followed an equal-sized increase in June, according to the statement. Lagarde described the bank’s approach as a reaction function based on three criteria: its assessment of the inflation outlook and associated risks in light of incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary-policy transmission. She said those criteria would guide future decisions rather than offering a fixed path for rates.
She also cited the Eurosystem’s enhanced EUREP repo facility for central banks. The ECB Governing Council decided in July on the facility’s operating features and onboarding process, the statement said. More than 30 central banks had expressed interest in the previous six months. Lagarde said EUREP supports monetary-policy transmission and the international role of the euro.
“The energy shock is too large to “look through” but a measured response remains appropriate to keep inflation in check.”
— Christine Lagarde, ECB president
How Long Will Energy Pressures Last?
The economic outlook depends in part on the intensity and duration of the Middle East conflict and how resulting shocks spread through the economy. Lagarde said risks to growth were tilted to the downside and risks to inflation to the upside. The statement does not establish how energy prices will evolve or how quickly their effects may reach food prices, services, wages and other costs.
The projections are forecasts, not confirmed outcomes. Lagarde said the ECB had so far seen no material wage response to the energy shock and no significant additional pass-through to other prices beyond its projections. Whether those conditions persist remains uncertain. The statement also identifies possible countervailing developments, including a lasting resolution of geopolitical conflicts, weaker energy-price pass-through or more risk-averse financial markets, any of which could lower inflation.
The source material provided covers headings through “Financial stability” but supplies no detailed financial-stability findings. It therefore does not support specific conclusions about vulnerabilities or risks in that area.
ECB to Review Incoming Data
Lagarde said future interest-rate decisions would follow a comprehensive assessment of incoming data using the ECB’s reaction function. The statement does not announce a date or outcome for the next rate decision. The next policy steps will depend on how the inflation outlook, underlying price pressures and policy transmission develop, including whether the energy shock has wider effects on prices and wages.
The ECB’s September projections place inflation above target into the first half of 2027 and around target toward the end of 2027, but those estimates may change as conditions evolve. Governments’ fiscal responses to energy costs and developments in the Middle East and global trade will also shape the outlook described in the statement.
Key Questions
What did Christine Lagarde tell the IMF committee?
She said the euro-area economy had remained resilient but faced risks from energy-market volatility, the Middle East conflict and trade tensions. She also outlined the ECB’s growth and inflation projections and its data-led approach to interest-rate decisions.
What were euro-area inflation and growth figures in the statement?
Lagarde said headline inflation was 3.8% in September 2026 and core inflation was 2.5%. The September ECB staff projections forecast growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028.
Did Lagarde announce a new ECB rate change?
No new rate change was announced in this statement. Lagarde reported that the ECB raised its key rates by 25 basis points in September, after an equal-sized increase in June, and said future decisions would depend on incoming data and the bank’s reaction function.
What remains uncertain about the outlook?
The duration and intensity of the Middle East conflict, the path of energy prices and the extent to which higher energy costs spread to other prices and wages remain uncertain. Lagarde said risks to growth were on the downside and risks to inflation on the upside.
Source: primary
