De Guindos warns of geopolitical and trade risks despite economic resilience
European Central Bank Vice-President Luis de Guindos stated that the euro area economy shows resilience and inflation is converging to target. He emphasized prudence due to geopolitical and trade risks, particularly from China.
Geopolitical shadows and trade tensions
De Guindos notes the economy's resilience, with first-quarter 2026 growth likely exceeding projections.
Headline inflation stands at 1.7 percent, while core inflation is nearing the target, largely due to anticipated base effects.
He highlights geopolitical risks, including developments in Ukraine, the Middle East, and Iran, as well as China's increasing competitiveness and export penetration into Europe, as key concerns.
He warns that additional trade diversion towards Europe would require vigilance, as Chinese exports could impact both inflation and growth downwards.
The current level of interest rates is deemed appropriate, requiring an open-minded approach to the future direction of monetary policy.
Navigating market perceptions and fiscal challenges
De Guindos clarifies President Lagarde's "good place" comment, preferring to describe the economy as resilient with converging inflation, while acknowledging high consumer price levels and moderate growth.
He emphasizes that markets understand the ECB's data-dependent, open-minded policy, despite scrutinizing communication nuances.
He avoids confirming market expectations for rate hikes or cuts, stressing that markets can be mistaken and are influenced by ECB communication.
He also addresses fiscal policy, noting the necessity of increased defence spending across Europe and the importance of continued fiscal consolidation signals for sovereign bond market stability.
Prudence over optimism
De Guindos's interview paints a picture of cautious optimism, tempering positive economic data with significant external risks.
His emphasis on prudence and data-dependence underscores the ECB's reluctance to commit to a future policy path, despite market speculation.
This approach, while consistent, highlights the ongoing tension between improving fundamentals and an unpredictable global environment.