Lagarde: Economic Activity Will Remain Modest Amid Energy Price Pressures

Christine Lagarde, President of the European Central Bank (ECB), spoke about the ECB's decision to leave key rates unchanged at the July policy meeting. According to Lagarde, recent data suggests economic activity is showing some improvement and services have partly recovered.

Digital services are robust, particularly in AI-driven sectors. However, firms and households expect labor markets to remain weaker than before the conflict, keeping growth risks tilted to the downside.

Lagarde emphasized that energy shocks are feeding into higher prices, with firms planning to raise selling prices. Energy inflation is likely to keep inflation well above target into the first half of 2027 before declining.

The ECB's primary mandate is to maintain price stability at around 2%. Lagarde noted that underlying inflation is contained and wage growth is moderate, but rising labor productivity only partly offsets unit labor cost pressures.