Monetary policy: ECB President Lagarde warns of economic weakness

ECB President Christine Lagarde warns of continued economic weakness in the eurozone. Recent data suggests weaker growth is expected in the short term, Lagarde said at a hearing before the European Parliament’s economic committee in Brussels. In the longer term, however, the economic recovery in the common currency area is likely to gain some momentum again, said Lagarde a good week before the European Central Bank’s interest rate decision on December 12th.

According to Lagarde’s assessment, the labor market in the euro area has so far proven to be resilient despite the economic downturn. However, surveys point to a slowdown in job growth and a further weakening in demand for workers, she said.

ECB wants to achieve inflation target by 2025

The central bank also does not expect a long-term increase in inflation in the euro zone. “A temporary increase in inflation is expected in the fourth quarter,” said Lagarde. Over the next year, however, inflation is likely to ease and reach the ECB’s inflation target of two percent in the medium term.

The ECB last cut key interest rates by 0.25 percentage points in October; the benchmark deposit rate is 3.25 percent. Many economists expect a further cut of 0.25 percentage points at the next interest rate meeting given the slackening inflation in the euro zone.