LIVE: ECB President Lagarde Briefs Media After Final Governing Council Meeting of the Year | AF1N

Thank you very much, Wong. And good afternoon, good morning to all of you. The vice president and I are pleased to welcome you to our press conference. The governing council today decided to keep the three key ECB interest rates unchanged. Our updated assessment reconfirms that inflation should stabilize at our 2% target in the medium term. The new Eurosystem staff projections show headline inflation averaging 2.1% in 2025, 1.9% in 2026, 1.8% in 2027, and 2% in 2028. For inflation excluding energy and food, staff project an average of 2.4% in 2025, 2.2% in 2026, 1.9% in 2027, and 2% in 2028. Inflation has been revised up for 2026, mainly because staff now expects services inflation to decline more slowly. Economic growth is expected to be stronger than in the September projections, driven especially by domestic demand. Growth has been revised up to 1.4% in 2025, 1.2% in 2026, 1.4% in 2027, and is expected to remain at 1.4% in 2028. We are determined to ensure that inflation stabilizes at our 2% target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path. The decisions taken today are set out in a press release that is available on our website. I will now outline in more detail how we see the economy and inflation developing, and will then explain our assessment of financial and monetary conditions. Looking at economic activity, the economy has been resilient. It grew by 0.3% in the third quarter, mainly reflecting stronger consumption and investment. Exports also increased, with a significant contribution from chemicals. The sectoral composition of growth was dominated by services, especially in the information and communication sector, while activity in industry and construction remained flat. The pattern of services-led growth is likely to continue in the near term. The economy is benefiting from a robust labor market. Unemployment at 6.4% in October is close to its historical low, and employment grew by 0.2% in the third quarter. At the same time, labor demand cooled further, with the job vacancy rate at its lowest level since the pandemic. The staff projections see domestic demand as the main engine of growth in the years ahead. Real incomes are set to rise further, and the saving rate should gradually come down from its still high level, supporting consumption. Business investment and substantial government spending on infrastructure and defense should increasingly underpin the economy. However, the challenging environment for global trade is likely to remain a drag on growth in the euro area this year and next. The governing council stresses the urgent need to strengthen the euro area and its economy in the present geopolitical context. We welcome the European Commission's call for governments to prioritize sustainable public finance, strategic investment, and growth-enhancing structural reforms. Unlocking the full potential of the single market is crucial. It is also vital to foster further capital market integration by completing the savings and investments union and the banking union to an ambitious timetable, and to rapidly adopt the regulation on the establishment of the digital euro. Looking now at inflation. Annual inflation has been in a narrow range since the spring and remained at 2.1% in November. Energy prices were 0.5% lower than a year ago after a larger decline in October. Food price inflation was 2.4% after 2.5% in October and 3% in September. Inflation excluding energy and food was steady at 2.4%, as goods and services inflation moved in opposite directions. Goods inflation declined to 0.5% in November from 0.6% in October and 0.8% in September. Services inflation rose to 3.4% in October and 3.5% in November from 3.2% in September. Indicators of underlying inflation have changed little over the recent months and remain consistent with our 2% medium-term target. While growth in unit profits was unchanged in the third quarter, unit labor costs grew at a slightly higher rate than in the second quarter. Compensation per employee rose at an annual rate of 4%. This was more than expected in the September staff projections and was due to payments over and above negotiated wages. Forward-looking indicators such as the ECB wage tracker and surveys on wage expectations suggest that wage growth will ease in the coming quarters before stabilizing somewhat below 3% towards the end of 2026. Inflation should decline in the near term, mostly because past energy price rises will drop out of the annual rates. Staff expects it to stay below 2% on average in 2026 and 2027, with energy inflation negative over most of this period and inflation excluding energy gradually declining. Inflation should then return to target in 2028 amid a strong rise in energy inflation. This in part reflects the upward effect on inflation of the EU Emissions Trading System 2, which is now expected to start in 2028, a year later than assumed in the September staff projections. Inflation excluding energy is projected to stabilize at around 2% in the final years of the projection horizon. Most measures of longer-term inflation expectations continue to stand at around 2%, supporting the stabilization of inflation around our target. Let's look at the risk assessment. While trade tensions have eased, the still volatile international environment could disrupt supply chains, dampen exports, and weigh on consumption and investment. A deterioration in global financial market sentiment could lead to tighter financing conditions, greater risk aversion, and weaker growth. Geopolitical tensions, in particular Russia's unjustified war against Ukraine, remain a major source of uncertainty. By contrast, planned defense and infrastructure spending, together with productivity-enhancing reforms, may drive up growth by more than expected. An improvement in confidence could stimulate private spending. The outlook for inflation continues to be more uncertain than usual on account of the still volatile international environment. Inflation could turn out to be lower if the rise in US tariffs reduces demand for euro area exports and if countries with overcapacity increase their exports to the euro area. Moreover, a stronger euro could bring inflation down further than expected. An increase in volatility and risk aversion in financial markets could weigh on demand and thereby also lower inflation. By contrast, inflation could turn out to be higher if more fragmented global supply chains push up import prices, curtail the supply of critical raw materials, and add to capacity constraints in the euro area economy. A slower reduction in wage pressures could delay the decline in services inflation. A boost in defense and infrastructure spending could also raise inflation over the medium term. Extreme weather events and the unfolding climate and nature crisis more broadly could drive up food prices by more than expected. Turning now to financial and monetary conditions. Market rates have increased since our last meeting. Bank lending rates for firms have been broadly stable since the summer after falling in response to our policy rate cuts over the previous years. In October, they stood at 3.5%, unchanged from September. The cost of issuing market-based debt was 3.4%, also close to its September level. And the average interest rate on new mortgages again held steady at 3.3% in October. Bank lending to firms grew by 2.9% on a yearly basis in October, unchanged from September. Corporate bond issuance rose by 3.2%, broadly unchanged as well. Mortgage lending strengthened, growing by 2.8% after 2.6% in September. In line with our monetary policy strategy, the governing council thoroughly assessed the links between monetary policy and financial stability. Euro area banks are resilient, supported by strong capital and liquidity ratios, solid asset quality, and robust profitability. But geopolitical uncertainty and the possibility of a sudden repricing in global financial markets pose risks to financial stability in the euro area. Macroprudential policy remains the first line of defense against the buildup of financial vulnerabilities, enhancing resilience and preserving macroprudential space. So in conclusion, the governing council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation stabilizes at our 2% target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path. 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 and to preserve the smooth functioning of monetary policy transmission. And we are now ready to take your questions.

Well, thank you very much for your two questions. I'll try to unpack because there's a lot there. On interest rates, we reconfirmed that we are in a good place, which does not mean that we are static. There was a unanimous decision taken today concerning the rates that we decided to hold. But there was also unanimous view that all optionalities should remain on the table and that we would stick to the meeting-by-meeting, data-dependent approach with no rate path set and no set date for any move. It was a unanimous view around the table. So I think that addresses your first question. Your second question is always an interesting question from you, because it raises issues that we will probably review in deeper detail at our February projection exercise, because we will also be looking at the surveillance report, the fiscal monitor, and the supply-side review to go a bit deeper into some of the facts that would answer your question. We think that there is some change taking place in our economies. If you look at the drivers and what has surprised us on the upside, it is characteristically investment, and it's not just spending by the public sector, but also the private sector, the corporate sector, both large corporates and SMEs. Their investment, based on the data we collect and the surveys we conduct, is largely attributable to the development of AI. AI takes many facets, but certainly computer capacity, telecommunications, additional investment in intangible more than tangible capex is really characteristic of what we are seeing at the moment. So that is something we can already analyze, but I think we will be able to go a bit deeper in February as we will see a longer interval to determine whether that is a long-lasting fact characteristic of this new growth, but that is clearly in play. The second one, which came as a bit of a surprise to us, is the contribution of exports. We had anticipated that exports, particularly out of the chemical industry and out of Ireland notably but not only, would correspond to a buildup of inventory and frontloading in the early months after the decision to increase tariffs. Well, that has been sustainable, and the contribution of exports has surprised us on the upside. So we don't know whether it's entirely attributable to the weight-loss drugs that are largely exported or to other phenomena, but the contribution of exports has surprised on the upside when in fact we believe that trade is more likely as a result of tariffs to be a drag on growth going forward. So that's also something we will be attentive to. Thank you.

Well, thank you very much for your two questions. Certain things have changed and others have not. When we look at activity, we have upgraded our projections. They've moved to the upside across the projection period. When we look at inflation, we've also increased our inflation projection for 2026 and we have taken into account the movement from 2027 to 2028. So there are lots of things that have moved in that respect. One thing that has not changed much at all, and which if anything may have actually worsened, is uncertainty. Uncertainty is not a comfortable position. So I think we all suffer from that degree of lack of comfort, and we are all attentive to uncertainty, how it pans out, whether it's uncertainty related to geopolitics, whether it's uncertainty related to the movement of trade from countries with overcapacity, in particular what happens at the borders of Europe. So there are lots of factors that are in play and that will evolve over the course of 2026 that are generating uncertainty. As far as the future is concerned, as I told your colleague earlier, there was unanimous agreement around the table about the fact that all optionalities should be on the table and that we should stick to the meeting-by-meeting approach to data dependency. We will be looking at all sorts of data in the field of wages, salaries, the decomposition of it. We will be particularly attentive because it plays a significant role in relation to services, and we do not have a set path for our rates going forward. I know everybody would like some forward guidance, but we simply in the current situation with the degree of uncertainty we are facing cannot offer forward guidance. Now your second question related to government spending, public investment. We take into account the documents that are filed by the various member states with the commission to review the path of investment going forward, and we have an impact on growth for certain countries. Germany being obviously one in 2026, 2027, and still a bit in 2028. Much can change in the meantime, but it does have an impact and it is a driver of growth in the investment section I was describing earlier.

I don't have to wait for your second question. The answer is no.

Revamp, you say?

Okay. Well, let me clarify one thing. I don't have any favorite candidate, and I did not say that Klaus Knot was a good candidate. There are plenty of very good candidates. Isabel is one of them, but there are plenty of them, and I'm sure that there will be more in the future. Why not? I find it terribly satisfactory in a way that so many people want to have my job. It's a great job, and it's one where you feel that you can actually matter and affect the life of people and try to deliver for the European Union and for our currency, the euro. But as to who it is, what nationality, I'll have nothing to say about that. It will be for the European Council, and the decision will be made outside this beautiful institution. So whatever they decide. But thank you. You still have a long time to ask all those questions.