ECB President Christine Lagarde said the eurozone economy has shown better resilience than expected to US tariffs, ensuring that inflation risks remain under control. According to her, the 2% interest rate policy gives the ECB enough room to act if inflation risks change.
The ECB has so far kept rates unchanged since June, with inflation stable around the 2% target. Investors have also dismissed expectations of additional rate cuts, and any new policy discussions are only expected in December.
Lagarde stressed that the trade shock has not triggered new inflationary pressures, so the ECB is not faced with the dilemma of slow growth with high inflation. Factors such as the absence of supply chain disruptions, government spending, the absence of EU tariff retaliation, and the strengthening of the euro have softened the impact of the tariffs.
She also stressed that investors are now reassessing the US dollar’s position as a global safe-haven currency, a change that coincided with the imposition of tariffs. While uncertainty has weighed on growth, the trade deal has ultimately boosted confidence earlier than expected.
Additionally, the government's decision to increase defense spending is expected to contribute an additional 0.25 percentage points to growth between 2025 and 2027, largely offsetting the negative impact of trade tariffs.
