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At the IMF’s October 17, 2026, Annual Meetings, ECB President Christine Lagarde said the global and euro area economies have remained resilient despite uncertainty and an energy shock tied to the Middle East conflict. She cited elevated inflation risks, recent ECB rate increases and projections for euro area growth, while saying the central bank would base future decisions on incoming data.
European Central Bank President Christine Lagarde told the International Monetary and Financial Committee on October 17 that energy-market volatility linked to the Middle East conflict is clouding the outlook for growth and inflation, even as the euro area economy has so far proved resilient. Her statement at the IMF Annual Meetings outlined the ECB’s latest inflation and growth projections and its approach to future interest-rate decisions.
Lagarde said the global economy had held up amid high uncertainty, with technology investment, including spending related to artificial intelligence, supporting activity and trade. But she said trade tensions, protectionist measures and sharp energy-market swings remained headwinds. The ECB sees risks as tilted to the downside for growth and to the upside for inflation, according to the statement.
For the euro area, ECB staff projections published in September forecast growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. Lagarde said growth was broad-based across most countries and sectors in the first half of 2026. The projections anticipate support from recovering real incomes, a resilient labour market, public investment in infrastructure and defence, and spending on digital technologies and AI.
Inflation rose in September: headline inflation reached 3.8%, while core inflation increased slightly to 2.5%. Lagarde attributed most of the headline rise to energy inflation, with smaller contributions from food and services. She said higher energy costs were expected to keep headline inflation well above the ECB’s target into the first half of 2027, before it declines and returns to around target toward the end of that year.
The ECB’s Governing Council raised its key interest rates by 25 basis points in September, following an increase of the same size in June. Lagarde said the shock was too large to ignore, but that a measured policy response remained appropriate. She said the ECB would assess inflation prospects, underlying inflation and the strength of monetary-policy transmission when setting future policy.
Energy Shock Shapes ECB Outlook
The statement sets out how the ECB is balancing the risk of a renewed inflation surge against the possibility that higher borrowing costs and external shocks will weaken activity. For households and businesses, the central bank’s outlook points to continued pressure from energy prices and tighter financing conditions, while the projected recovery in growth remains gradual.
Lagarde’s emphasis on a data-dependent reaction function means the statement does not commit the ECB to a specific path for interest rates beyond decisions already taken. The outlook matters to markets and borrowers because future policy will depend on whether energy costs feed into wages and other prices, and on how tighter financial conditions affect demand.
She also called for governments to keep any response to the energy shock temporary and targeted. The statement links fiscal choices to the ability of governments to preserve room to respond to future shocks, particularly in countries with high debt.
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September Rates and Projections
The statement was delivered at the 54th meeting of the International Monetary and Financial Committee, during the IMF Annual Meetings. It reflects the ECB’s September staff projections and the Governing Council’s rate increases in June and September. Lagarde said long-term interest rates had risen notably since the ECB’s previous meeting, tightening financing conditions.
The ECB’s assessment also described a mixed global backdrop. AI-related investment was supporting activity in economies tied to technology supply chains, while trade tensions and protectionist policies were changing trade flows and weighing on confidence. Lagarde argued that greater openness, predictability and respect for the rule of law would support trade and investment.
In July, the Governing Council decided on the operating features and onboarding process for an enhanced Eurosystem repo facility for central banks, known as EUREP. The ECB said more than 30 central banks had expressed interest in the previous six months. Lagarde said the facility is intended to support monetary-policy transmission and the international role of the euro.
“The energy shock is too large to “look through” but a measured response remains appropriate to keep inflation in check.”
— Christine Lagarde, ECB president, in her statement to the IMFC
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Conflict and Inflation Risks Remain
The duration and intensity of the Middle East conflict, and how its effects may spread through the economy, remain uncertain. The ECB also warned that the energy shock could prove more persistent than expected, adding to indirect price pressures and second-round effects. Lagarde said there was no evidence at that stage of significant energy-price pass-through to other prices and wages beyond what the ECB had already included in its projections.
The inflation outlook could also be affected by Russia’s war against Ukraine and by extreme weather that pushes up food prices. On the other side, a sustainable resolution of geopolitical conflicts, weaker energy-price pass-through or more risk-averse financial markets could reduce inflation pressures. The statement does not provide a new rate commitment or quantify the effects of these possible developments.
The source material provided for the statement includes a heading on financial stability but no further details under that heading. It therefore does not establish specific financial-stability risks or measures beyond the monetary-policy and economic points set out above.
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ECB to Reassess Incoming Data
The ECB says future rate decisions will follow a comprehensive assessment of incoming economic and financial data using its three-part reaction function: the inflation outlook and associated risks, underlying inflation dynamics, and the strength of monetary-policy transmission. The statement sets no date or pre-announced direction for the next decision.
Key developments to watch include energy prices, whether their rise spreads to wages and other prices, and how tighter financing conditions affect demand and growth. The ECB’s September projections provide the current reference point for its outlook, but the bank says its decisions will respond to new information.
Governments, meanwhile, were urged to keep energy-related fiscal support temporary and targeted, maintain sound public finances and improve spending efficiency. Lagarde also highlighted structural priorities such as workforce skills, labour-market participation and access to risk capital for innovative firms.
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Key Questions
What did Christine Lagarde tell the IMFC?
She said the global and euro area economies had remained resilient but warned that energy-market volatility and geopolitical conflict posed risks to growth and inflation. She also described the ECB’s rate decisions and its approach to future policy.
What are the ECB’s euro area growth projections?
The September 2026 ECB staff projections forecast euro area growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028.
How high was inflation in September?
According to Lagarde’s statement, headline inflation reached 3.8% and core inflation rose slightly to 2.5%. The statement said the headline increase mainly reflected energy inflation.
Did Lagarde signal another ECB rate increase?
No specific next move was announced in the statement. Lagarde said future decisions would depend on incoming data and the ECB’s assessment of inflation, underlying price dynamics and monetary-policy transmission.
When does the ECB expect inflation to return to around target?
The statement said headline inflation was expected to decline after the first quarter of 2027 and return to around target toward the end of 2027. That is a projection, not a guarantee.
Source: primary
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