Lagarde: Eurozone not heading toward recession

ECB president Christine Lagarde said, based on the information they have, the ECB did not believe there would be a recession across the eurozone and they were 'still looking at that soft landing'

President of European Central Bank Christine Lagarde: 'We decided to cut all our rates by 25 basis points because we believe that the disinflationary process is well on track.'
 

President of the European Central Bank (ECB) Christine Lagarde has said she does not believe the eurozone is heading towards recession despite negative trends seen in recent months. 

Her comments come as the ECB made another 0.25% cut to interest rates as inflation continues to recede. This is the third rate cut since June. 

According to the latest data from September, annual inflation across the eurozone is down to 1.7%, with Ireland recording 0% inflation in that time, the lowest in the bloc.

The ECB’s medium-term inflation target is 2%.

However, the rate cut is also seen as a means to prop up the eurozone economy which has been weakening in recent months. Germany, the biggest economy in the eurozone, is projected to record an economic contraction this year.

Speaking to reporters on Thursday, Ms Lagarde said, based on the information they have, the ECB did not believe there would be a recession across the eurozone and they were “still looking at that soft landing”.

"Even with one of the member states, however large it is, facing difficult circumstances on the basis of what they themselves are producing, it does not necessarily imply that the whole of the euro area is going to be affected in the same way,” she said.

Ms Lagarde did acknowledge economic activity has been “somewhat weaker than expected”.

“While industrial production has been particularly volatile over the summer months, surveys indicate that manufacturing has continued to contract. For services, surveys show an uptick in August, likely supported by a strong summer tourism season, but the latest data point to more sluggish growth.

“Businesses are expanding their investment only slowly, while housing investment continues to fall,” she said, adding exports had weakened.

Ms Lagarde said they expected the economy to strengthen over time as rising real incomes allow households to consume more and easing interest rates allow more investment.

"We decided to cut all our rates by 25 basis points because we believe that the disinflationary process is well on track, and all the information that we received in the last five weeks since our last monetary policy decision were heading in the same direction, lower."

The ECB has its final meeting of the year in December, where another rate has not been ruled out.

Ms Lagarde said they were not pre-committing to any particular rate path and their decision in December would be data dependent.

She added rates would be kept “sufficiently restrictive for as long as necessary” to get inflation down consistently to 2%.

"Our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission,” she said.