ECB: Lagarde: Risks to Growth Tilted To Downsidde; Inflation Outlook Uncertain

On Growth:

• Risks to economic growth remain tilted to the downside. A further escalation in global trade tensions and associated uncertainties could lower euro area growth by dampening exports, and dragging down investment and consumption. A deterioration in financial market sentiment could lead to tighter financing conditions and greater risk aversion and make firms and households, less willing to invest and consume.
• Geopolitical tensions remain a major source of uncertainty. By contrast, if trade and geopolitical tensions were resolved swiftly, this could lift sentiment and spur activity.

On inflation:

• The outlook for euro area inflation is more uncertain than usual. As a result of the volatile global trade policy environment, falling energy prices and a stronger Euro could put further downward pressure on inflation.
• This could be reinforced if higher tariffs led to lower demand for euro area, exports, and to countries with over capacity, rerouting the exports to the euro area.
• Trade tensions could lead to greater volatility and risk aversion in financial markets, which would weigh on domestic demand, and would thereby also lower inflation.
• By contrast, a fragmentation of global supply chains could raise inflation by pushing up import prices and adding to capacity constraints in the domestic economy.
• A boost in defense and infrastructure spending could also raise inflation over the medium term, extreme weather events, and the unfolding climate crisis, more broadly, could drive up food prices by more than expected."