ECB Leader Warns Global Economy Moving from Risk to Uncertainty

(MENAFN) European Central Bank President Christine Lagarde warned Thursday that the global economy is transitioning from an era of risk to one of heightened uncertainty, where traditional forecasting tools are increasingly inadequate.

Speaking at the Global Risk Conference organized by Johns Hopkins University in Italy, Lagarde said that the ECB will maintain flexibility in monetary policy amid rising geopolitical tensions, particularly following the recent US and Israeli strikes on Iran. She emphasized that interest-rate decisions will be made on a meeting-by-meeting basis, guided by incoming economic data.

Lagarde explained that the current global environment differs from past periods of manageable risks, noting that macroeconomic models calibrated to the relatively stable conditions of previous decades are insufficient to guide policy today. The ECB is increasingly relying on scenario analysis and policy adaptability to navigate this new landscape.

Drawing a historical analogy, she recalled that the technological optimism of the 1920s, driven by innovations such as the internal combustion engine and electricity, coincided with geopolitical fragmentation that ultimately culminated in the Great Depression. “Markets priced technological gains as if they could be sustained in a fracturing world. Policymakers allowed the trading system to fragment as if this would not constrain growth,” she said.

Lagarde also highlighted the global complexity of artificial intelligence supply chains, pointing out that producing an AI chip relies on multiple regions: critical minerals from China, lithography machines from the Netherlands, chip design from the US, and advanced manufacturing from Taiwan. She noted that building a fully self-sufficient regional semiconductor supply chain could cost over $1 trillion.

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