Stagflation describes the 1970s, not today's economy, Lagarde says

• Lagarde cited key differences from the 1970s: different monetary and fiscal frameworks, lower unemployment today, and non-persistent inflation patterns
• The ECB projects euro zone growth of 0.9% in 2026, 1.3% in 2027, and 1.4% in 2028 under baseline scenario
• An adverse scenario based on oil prices near $120 per barrel would reduce 2026 growth to 0.6%, though Lagarde maintains the economy is not in stagnation or recession

Summary

Key Development: ECB President Christine Lagarde rejected characterizations of the eurozone economy as facing stagflation, despite acknowledging intensifying risks to both inflation and growth.

Main Points:

• Lagarde dismissed comparisons to 1970s stagflation, citing fundamental differences including today's monetary/fiscal frameworks and labor market conditions
• The ECB confirmed that upside inflation risks and downside growth risks have intensified
• Eurozone growth "barely grew" last quarter, with inflation remaining "far above" the ECB's target

Economic Projections:

• Baseline scenario (March): 0.9% growth in 2026, 1.3% in 2027, 1.4% in 2028
• Adverse scenario: 0.6% growth in 2026, 1.2% in 2027, 1.6% in 2028 (based on oil averaging ~$120/barrel and elevated natural gas prices)
• Oil prices exceeded $120 on Thursday before retreating

Market Context:

Lagarde acknowledged the economy is "moving away from March's baseline scenario" and conceded that stagflationary scenarios are imaginable, though "not what we are seeing for the moment."

Policy Implications:

Separate reporting indicated ECB policymakers are likely to raise interest rates at least twice starting in June, unless a favorable resolution to the Iran conflict rapidly reduces energy prices to pre-war levels.

Bottom Line: The ECB maintains its official stance against stagflation concerns while simultaneously preparing for potential rate hikes, signaling a delicate balancing act between combating inflation and supporting fragile economic growth.