Lagarde says eurozone growth ‘more promising than we thought’

European Central Bank President Christine Lagarde said on Friday that the eurozone's economic growth is "a bit more promising than we thought," adding that growth momentum should persist through the end of 2026, according to Newsquawk, which reported her remarks on RTE Radio.fananews

The comments follow the ECB's September 10 decision to raise its three key interest rates by 25 basis points, bringing the deposit facility rate to 2.50%. At that meeting, the central bank revised its baseline growth projection for 2026 upward to 0.9%, with forecasts of 1.4% for 2027 and 1.5% for 2028.qna+1

Germany Sees Stronger Recovery

Lagarde's upbeat tone was echoed by German Chancellor Friedrich Merz, who said on Thursday evening that Germany's economy was recovering and expected to grow by around 1.3% this year, according to Qatar News Agency. Merz said Germany had "moved beyond the lowest point of the economic cycle" and emerged from a period of contraction or stagnation.qna+1

The 1.3% figure represents a notable improvement over the German government's earlier forecast of just 0.5% growth for 2026, which had been lowered following the sharp rise in energy prices caused by the war in the Middle East.fananews+1

Energy and Inflation Risks Persist

The optimism comes against a backdrop of rising costs that threaten to constrain growth across Europe. Oil futures have climbed back above $100 a barrel, roughly 50% above pre-war levels, while European natural gas prices have reached their highest since 2022. Eurozone annual inflation accelerated to 3.3% in August from 2.9% in July, well above the ECB's 2% target.finance-commerce+1

Lagarde noted on Friday that the ECB was "not seeing second-round effects yet" from the energy shock, but the bank earlier this month raised its inflation expectations to an average of 2.5% for next year. The Bank of England on Thursday held rates steady but warned it expects U.K. inflation to top 4% by early 2027.ecb.europa+2

Traders now expect almost a full additional percentage point of rate increases from the ECB over the next year, reflecting the tension between improving growth data and persistent inflationary pressures. Lagarde also cautioned that rising bond yields would "increase budgetary pressure" on eurozone governments.newsquawk+1