ECB President Lagarde (post-meeting statement) reiterates that outlook remains uncertain with upside risks to inflation and downside risks to growth

GUIDANCE:

• Reiterates meeting-by-meeting approach; not pre-committing to a rate path
• Stands ready to adjust all instruments

OUTLOOK:

• Outlook remains uncertain with upside risks to inflation and downside risks to growth
• Domestic demand seen weaker now than in March
• Risks to growth outlook are to the downside
• Growth could turn out to be higher if economy adapts more quickly, or the war is resolved promptly
• Risks to inflation outlook are to the upside
• Bigger spillover to other prices is among upside risks
• Inflation could be somewhat lower if war effects prove to be more short-lived than currently seen, and secondary impact is lower than seen

ECONOMY:

• Conflict is weighing on activity
• Manufacturing has held up
• Surveys point to a slowdown in services
• Household balance sheets are solid

INFLATION:

• War in the Middle East raising inflation pressure
• Higher energy costs and lower confidence will hit investment in the short-term
• Some indicators of underlying inflation have been driven higher by energy shock
• Short-term inflation expectations higher than when the war began; long-term expectation stand around 2%
• Increase in energy prices will lift inflation further, above 2% in H1 2027

LABOUR MARKET:

• Labour market remains resilient
• Labour demand has cooled further
• Wage trackers continue to indicate easing labour costs in 2026

FISCAL:

• Public investments are seen providing some cushion
• Reiterates spending should be targetted, temporary

FINANCIAL/MONETARY CONDITIONS:

• Financial conditions are broadly unchanged, but tighter than before the war
• Euro area banks are resilient
• A sharp drop in asset prices, and deteriorating asset quality, could cause risks to financial stability