Euro Zone's Economic Forecast: Challenges on the Horizon

Christine Lagarde, President of the European Central Bank, warns of weaker economic growth for the euro zone in the coming months with downside risks in the medium term. Political turmoil in France adds uncertainty to the recovery, and ECB intervention remains conditional. Inflation and investment trends are also discussed.

The European Central Bank (ECB) President Christine Lagarde has issued a warning about the potential for weaker economic growth in the euro zone, emphasizing that downside risks loom over the medium-term economic outlook. Speaking at a parliamentary hearing, Lagarde highlighted the stagnant nature of the euro zone economy over the past 18 months.

Amid political turmoil in France, concerns have risen about financial stability and borrowing costs. While Lagarde acknowledged financial stability as crucial for price stability, she avoided directly addressing whether the ECB would step in to assist France if market turbulence escalates.

Lagarde further noted that immediate growth might be hindered by a slowdown in the services sector and a manufacturing contraction, while stressing the threats posed by international trade barriers. Looking ahead, recovery is anticipated through increased investment and consumer spending, with inflation expectations outlined for the coming years.

(With inputs from agencies.)