Lagarde Says Risks to Growth Have Become 'More Balanced'

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00:00Risks to economic growth have become more balanced.

00:04While recent trade agreements have reduced uncertainty,

00:09a renewed worsening of trade relations could further dampen exports

00:14and drag down investment and consumption.

00:18A deterioration in financial market sentiment could lead to tighter financing conditions,

00:24greater risk aversions and weaker growth.

00:28Geopolitical tensions, such as Russia's unjustified war against Ukraine

00:32and the tragic conflict in the Middle East, remain a major source of uncertainty.

00:38By contrast, higher-than-expected defense and infrastructure spending,

00:46together with productivity-enhancing reforms, would add to growth.

00:52An improvement in business confidence could stimulate private investment.

00:57Sentiment could also be lifted and activities spurred if geopolitical tensions diminished

01:03or if the remaining trade disputes were resolved faster than expected.

01:08The outlook for inflation remains more uncertain than usual

01:14as a result of the still-volatile global trade policy environment.

01:20A stronger euro could bring inflation down further than expected.

01:25Moreover, inflation could turn out to be lower if higher tariffs

01:29lead to lower demand for euro-area exports

01:33and induce countries with overcapacity to further increase their export to the euro-area.

01:39Trade tensions could lead to greater volatility and risk aversion in financial markets,

01:45which would weigh on domestic demand and would thereby also lower inflation.

01:49By contrast, inflation could turn out to be higher if a fragmentation of global supply chains

01:58pushed up import prices and added to capacity constraints in the domestic economy.

02:06A boost in defense and infrastructure spending could also raise inflation over the medium term.

02:12Extreme weather events and the unfolding of climate crisis more broadly could drive up food prices by more than expected.

02:23The disinflationary process is over.

02:28And I'm referring here to the causes for inflation that we have experienced in the last few quarters.

02:35So, in anticipation of a possible questions, are we still in a good place?

02:44Well, we continue to be in a good place.

02:48OK?

02:50Now, why do I say that?

02:53Because inflation is where we want it to be.