Lagarde warns of new era of uncertainty from technology and fragmentation
ECB President Christine Lagarde warned that global economies are entering an era of genuine uncertainty, driven by rapid technological transformation and geopolitical fragmentation. Speaking in Bologna, she outlined strategies for policymakers to navigate this new landscape.
From measurable risk to genuine uncertainty
Lagarde distinguished between measurable risk and genuine uncertainty, noting that for centuries, observation and reason allowed for the quantification of danger, underpinning modern finance and central bank frameworks.
This approach, durable for decades, is now reaching its limits.
The global order, previously anchored by multilateral rules and predictable geopolitics, is being upended.
Shocks like the pandemic and Russia's invasion of Ukraine are transforming the underlying structure, rather than occurring within a stable one.
The World Trade Organization reports a more than fourfold increase in G20 trade affected by new tariffs and import restrictions between October 2024 and October 2025, marking the largest jump since monitoring began.
Two forces, opposing directions
Lagarde identified two powerful, opposing forces shaping the global economy: unprecedented technological transformation, primarily driven by AI, and accelerating geopolitical fragmentation.
AI models, non-existent three years ago, are now profoundly reshaping industrial processes and labor markets, potentially lifting annual productivity growth by up to 1.5 percentage points.
Conversely, fragmentation, marked by rising tariffs and trade restrictions, could reduce global output by up to 7% of GDP over a decade.
This divergence creates a wider range of possible economic outcomes than seen in decades, demanding new approaches to policy.
AI's global dependence: A fragile future
Lagarde's speech highlights AI's unique vulnerability: its deep reliance on global integration means fragmentation directly undermines its potential, unlike past technological shifts.
This creates a paradox where AI's immense gains are jeopardized precisely when international cooperation is weakest.
Therefore, layered cooperation is a pragmatic imperative to prevent economic self-harm and fully realize this technology's transformative benefits.