President Lagarde presents the latest monetary policy decisions – 29 October 2026

Christine Lagarde · European Central Bank

Euro area keeps expanding; manufacturing, services and exports should underpin near-term growth.

The euro area economy continued to expand in the third quarter. Services recovered after weakening at the start of the Middle East conflict. Manufacturing, digital services and exports are benefiting from AI-related business investment, and government spending on infrastructure and defence also supports activity. These factors should continue to underpin growth in the near term. Renewed energy price increases have hit consumer confidence, and higher financing costs are likely to weigh on growth. Unemployment held at 6.4% in August.

“Manufacturing, digital services, and exports are benefiting from [AI-related] business investment. ... These factors should continue to underpin growth in the near term.”at 2:35

Christine Lagarde · European Central Bank

Energy-shock fiscal support should be temporary and targeted; fiscal sustainability is a crucial anchor.

Fiscal sustainability is a crucial anchor for broader economic stability. Governments' responses to the energy shock should be temporary, targeted and tailored. This keeps the public finances sound while the energy shock works through. Fiscal uncertainty could tighten financing conditions further and weaken confidence, which would lower consumption and investment.

“Fiscal sustainability is a crucial anchor for broader economic stability. Fiscal responses to the energy shock should be temporary, targeted, tailored.”at 3:57

Christine Lagarde · European Central Bank

Structural reforms and single-market harmonisation are needed to raise euro area potential growth.

Higher potential growth requires structural reforms, which must be underpinned by sound public finances. Simplifying and harmonising rules across the EU single market, accelerating the energy transition and completing the savings and investment union are the key building blocks. Together they should make the euro area economy more dynamic and resilient. The ECB presents these reforms as necessary to raise potential growth, not as a near-term fix for the energy shock.

“Simplifying and harmonizing rules across the EU single market, accelerating the energy transition, and completing the savings and investment union are key building blocks to make our economy more dynamic and resilient.”at 4:11

Christine Lagarde · European Central Bank

Euro area wage growth stays moderate; negotiated wages seen at 2.5–2.8% through 2026, averaging 2.6% in 2027.

Wage pressures remain moderate. Compensation per employee grew 3.3% in the second quarter, down from 3.6% in the first quarter. Rising productivity has helped contain the growth of unit labour costs. The forward-looking wage tracker shows negotiated wage growth fluctuating between 2.5% and 2.8% in the remaining months of 2026 and averaging 2.6% in the first three quarters of 2027. Wages are therefore not showing a material response to the energy shock at this stage.

“Our forward looking wage tracker suggests that negotiated wage growth will fluctuate between 2.5[-]2.8% in the remaining months of 2026 and average 2.6% in the first three quarters of twenty twenty seven.”at 6:10

Christine Lagarde · European Central Bank

Energy shock will keep euro area headline inflation well above target over coming quarters.

Headline inflation rose to 3.8% in September from 3.2% in August, and energy inflation jumped to 18.9% from 14.3%. Energy prices have risen beyond the September baseline. The ECB expects this to raise inflation further in the near term and keep headline inflation well above target over the coming quarters. Indirect and second-round effects on other prices and wages are the mechanism. Inflation should only return to target after energy inflation declines and higher interest rates take effect. Underlying inflation has stayed broadly stable so far, and wages show no material response yet.

“This is likely to raise inflation further in the near term and keep headline inflation well above targets over the coming quarters.”at 7:00

Christine Lagarde · European Central Bank

Renewed energy price rises are an upside inflation risk and a downside growth risk.

Energy prices have continued to rise after the Middle East conflict began. Diesel and petrol prices reached new peaks in September, partly reflecting elevated refining margins. Higher energy costs are hitting consumer confidence and real incomes, which weighs on spending and growth. The same energy shock feeds into inflation through indirect and second-round effects. The longer energy prices stay high, the more likely they are to push up broader inflation.

“Energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook.”at 0:32

Christine Lagarde · European Central Bank

Financing conditions have tightened; higher borrowing costs weigh on euro area growth and inflation.

Interest rates have broadly moved up and stock prices have fallen since the last meeting. The cost of market-based debt for firms rose to 4.1% in August from 4%. Bank lending growth to firms slowed, and banks tightened credit standards in the third quarter, citing concern about customers' economic risks. Corporate loan demand fell because of higher rates. Mortgage rates rose to 3.8%, and mortgage demand declined substantially. These tighter conditions are likely to weigh on both inflation and growth.

“Financing conditions have tightened since our last meeting, which is likely to weigh on inflation and growth.”at 1:10

Christine Lagarde · European Central Bank

AI investment supports euro area growth; firms' new-tech adoption could lift growth above expectations.

Over the medium term, the recovery in confidence and real incomes plus a robust labour market should support domestic demand. Investment in AI-related activities, along with government spending on infrastructure and defence, should continue to support growth. Growth could also surprise on the upside if euro area firms adopt new technologies faster, together with reforms to raise productivity and complete the single market. The ECB sees AI investment as one of the drivers of euro area growth and as a potential source of upside.

“Investment in AI related activities ... should also continue to support growth. ... the adoption of new technologies by Euro Area firms ... may drive up growth by more than expected.”at 3:32

Christine Lagarde · European Central Bank

Disrupted energy supplies from the Middle East conflict are the main downside growth and upside inflation risk.

The Middle East conflict is a central source of downside growth risk. Continued disruption of energy supplies could push energy prices up further and keep them high for longer than expected. That would weigh on real incomes, spending and investment. The risks to inflation are to the upside, because the energy shock could spread to other prices and wages through second-round effects. Services already weakened at the start of the conflict before recovering.

“Continued disruption of energy supplies could cause energy prices to rise further and for longer than currently expected.”at 7:35

Christine Lagarde · European Central Bank

Gas prices could climb if supply is disrupted or a cold winter meets low storage levels.

Gas is the main upside risk to the energy outlook. Gas prices could rise if supply is disrupted further. They could also rise if an unusually cold winter coincides with low storage levels. Higher gas prices would feed into broader inflation through indirect and second-round effects, and the longer energy prices stay high, the more likely that becomes.

“Gas prices, in particular, could increase if supply is disrupted further or an unusual cold winter coincides with low storage levels.”at 9:21

Christine Lagarde · European Central Bank

Renewed trade tensions would fragment supply chains, curb critical raw materials and strain capacity.

Renewed trade tensions between major economies are a risk on both sides of the ECB's outlook. They could make global supply chains more fragmented and curtail the supply of critical raw materials. They could also worsen capacity constraints in the euro area economy, which would push up inflation. On the growth side, the same tensions could reduce exports and weaken consumption and investment.

“Renewed trade tensions could give rise to more fragmented global supply chains, curtail the supply of critical raw materials, and worsen capacity constraints in the euro area economy.”at 9:44

Christine Lagarde · European Central Bank

Extreme weather and El Niño could push food prices up more than expected.

Extreme weather events, potentially intensified by El Niño conditions, and the broader climate and nature crisis could drive up food prices more than expected. Food price inflation has already edged up to 1.3% in September from 1.1% in August. The ECB flags this as an upside risk to its inflation outlook.

“Extreme weather events, potentially reinforced by intensifying El Nino conditions, and the unfolding climate and nature crisis more broadly could drive up food prices by more than expected.”at 9:57

Christine Lagarde · European Central Bank

ECB holds rates but won't pre-commit to a path; will adjust all instruments to hit 2% inflation.

The ECB kept its three key rates unchanged. Decisions are data-dependent and made meeting by meeting, based on the inflation outlook and its risks, the dynamics of underlying inflation and the strength of monetary policy transmission. The ECB is not pre-committing to a rate path. The energy shock pushes inflation up and growth down, and tighter financing conditions are likely to weigh on both. Declining energy inflation together with the effects of higher interest rates should bring inflation back to target. The ECB is committed to stabilising inflation at 2% in the medium term and stands ready to use all instruments to preserve transmission.

“And in any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilizes sustainably at our medium term target”at 13:08