ECB Poised to Upgrade Growth Outlook as Euro Zone Economy Defies Tariff Fears

2025-12-11 economy

Frankfurt, Thursday, 11 December 2025.
President Lagarde signals an imminent growth forecast upgrade, noting the Euro zone’s unexpected resilience against US tariffs has defied earlier fears of an economic downturn.

Defying Expectations: The Resilience of the Euro Area

Speaking at a Financial Times event on Wednesday, European Central Bank (ECB) President Christine Lagarde confirmed that the Governing Council is likely to revise its growth projections upward during its meeting next week [1]. Lagarde noted that while previous projection exercises had already seen upgrades, her “suspicion is that we might do that again in December” [1]. This optimism stems from the euro zone economy proving far more robust than feared following the United States’ tariff announcement back in April [2]. Despite concerns that these trade tensions, alongside a surging euro and competition from China, would depress exports, actual economic outcomes have been “benign” [1]. Lagarde highlighted that the European Union has not retaliated against the U.S. measures, the euro has not depreciated as anticipated, and the bloc is now growing close to its economic potential [2][3].

Labor Market Strength and Inflation Stability

A key driver of this resilience is the labor market, which Lagarde described as remaining robust with employment participation at record highs [2][3]. These indicators, combined with positive sentiment in manufacturing surveys, suggest the domestic economy is holding up well against external shocks [1][2]. On the price stability front, inflation remains close to the ECB’s target. Data shows that euro zone inflation rose slightly to 2.2% in November 2025, up from 2.1% the previous month [4]. Lagarde emphasized that with a track record of hovering near the 2% target, monetary policy is currently in a “good place” [2].

Interest Rates Likely to Hold Steady

Given the stable inflation outlook and economic resilience, financial markets and analysts see virtually no prospect of a rate change at the upcoming meeting on December 18 [1]. A Reuters poll conducted between December 5 and 10 found that all 96 economists surveyed expect the ECB to maintain the deposit rate at 2.00% [4]. Furthermore, the consensus suggests rates will likely remain unchanged throughout 2026, as the central bank balances sticky services inflation with solid domestic demand [4][6]. Lagarde reiterated that no immediate interest rate changes are needed, a signal investors have interpreted as a commitment to stability for the months ahead [1].

Structural Reforms Over Monetary Stimulus

While the economic outlook is improving, Lagarde pushed back against political pressure for more aggressive growth support. Responding to French President Emmanuel Macron’s calls for a dual mandate that supports growth, Lagarde argued that monetary easing cannot resolve Europe’s structural deficiencies [1]. She questioned whether lowering interest rates to “rock bottom” or restarting massive quantitative easing would facilitate the movement of goods and services, answering emphatically that it would not [1]. Instead, she pointed to internal trade barriers as the primary culprit stifling competitiveness, noting that these barriers are equivalent to a 110% tariff on services and a 60% tariff on goods traded between EU members [5]. Lagarde characterized the situation as an “existential crisis,” urging the European Commission to prioritize the dismantling of these obstacles and the creation of a Capital Markets Union to unlock financing for innovators [5].

Sources

European Central Bank Economic Outlook