FRANKFURT, Dec 10 (Reuters) – The euro zone economy is proving resilient to trade tensions and the bloc is growing close to its potential, which could prompt the European Central Bank to lift growth projections next week, ECB President Christine Lagarde said on Wednesday.
The euro zone had been expected to suffer a growth dip as U.S. tariffs, a surging euro and increased competition from China eat into exports. But actual outcomes have been far more benign, pointing to a rather resilient domestic economy.
“In the last projection exercises, we have upgraded our projections,” Lagarde told a Financial Times event. “My suspicion is that we might do that again in December.”
She pointed to sentiment indicators, including on manufacturing, and employment data as signs of resilience.
Lagarde also repeated her mantra that monetary policy was in a ‘good place’, a signal taken by investors to mean that no interest rate change was needed.
Financial investors see a close-to-zero chance of any rate change at the ECB’s next meeting on December 18 and see unchanged rates for months to come as inflation has been hovering close to the 2% target all year.
Lagarde, however, batted back calls by French President Emmanuel Macron for policy that is more supportive of growth, arguing that cheaper borrowing would do little to fix structural flaws, including internal barriers that hamper the flow of goods and capital.
“If I was to lower interest rates rock bottom, if I was to do massive quantitative easing, … would it change the barriers that I was talking about?”
“Would it facilitate the movement of goods and the provision of services across the member states? No, it wouldn’t,” Lagarde said.
Still, she said this was a good debate to have and it was “interesting” to consider a change in the EU Treaty, which defines the ECB’s primary role as providing price stability.
(Reporting by Balazs Koranyi; Editing by Jan Harvey)
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