Christine Lagarde: Hearing of the Committee on Economic and Monetary Affairs of the European Parliament

Lagarde appeared before the European Parliament's Committee on Economic and Monetary Affairs to discuss the impact of artificial intelligence (AI) on the euro area economy. Her remarks covered the outlook for the economy, the potential effects of AI on inflation and the wider economy, and the Committee's ongoing monetary policy decisions.

The euro area economy showed resilience in the second quarter of 2026, with solid real GDP growth across most countries and sectors. Manufacturing performed well, driven by increased government spending on defence and infrastructure. Consumer confidence had rebounded from low levels in the spring, benefiting services and exports. The labour market remained robust, with unemployment at 6.4% in July, although growth in employment and the labour force showed signs of slowing.

Productivity began to pick up, and the baseline of the ECB staff projections anticipated the economy to grow by 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028. Headline inflation rose to 3.2% in August, with energy prices contributing significantly to the increase. Inflation excluding energy and food decreased to 1.1% in August, driven by lower food prices. Wages remained largely unaffected by the energy shock, with compensation per employee growing at 3.3% in the second quarter.

Despite the headwinds from the energy shock, the ECB decided to raise the three key interest rates by 25 basis points at their monetary policy meeting earlier in the month. This decision aimed to counteract the risk of higher energy prices becoming embedded in inflation, while acknowledging the resilience of the economy. The Committee recognised that AI could reshape production processes and business models, with potential long-term benefits such as increased productivity and lower costs. However, the size and speed of these effects depended on the rate of adoption by firms.