Lagarde Warns Against Policies Supporting Demand Increase

European Central Bank President Christine Lagarde warned that financial policies adopted by some European governments could lead to increased demand, emphasizing the need for financial and monetary policies to work in tandem to achieve sustainable and balanced economic growth. Speaking at a conference hosted by the Bank of Thailand and the Bank for International Settlements in Bangkok, Lagarde stated, "Financial policies that lead to excess demand in an economy facing supply shortages may force policymakers to tighten monetary policy more than necessary." She added, "Unfortunately, some financial measures we are analyzing from various European governments, particularly those in the euro area, indicate a trend in that direction," referring to measures that could enhance demand. The European Commission anticipates a contraction in the euro area economy in the fourth quarter of 2022 and the first quarter of 2023, due to rising energy prices, higher interest rates undermining spending, borrowing power, and confidence.