European Central Bank president Christine Lagarde gave her first speech since becoming ECB President at the start of November. She called for a new European strategy and noted major movements in global trade and traditional economic models.
Lagarde said the euro zone should remain open to multilateral trade but it also needs to create more economic growth at home, via greater public investment, to withstand weakness abroad and become more balanced.
“Ongoing trade tensions and geopolitical uncertainties are contributing to a slowdown in world trade growth, which has more than halved since last year. This has in turn depressed global growth to its lowest level since the great financial crisis,” Lagarde said at the European Banking Conference in Frankfurt.
Lagarde called on euro-zone governments to strengthen domestic demand after a global trade war predominantly led by Germany brought export-driven growth to an abrupt end.
“The answer lies in converting the world’s second largest economy into one that is open to the world but confident in itself – an economy that makes full use of Europe’s potential to unleash higher rates of domestic demand and long-term growth,” Lagarde said.
She did not discuss monetary policy but said that the Central Bank would continue to play its role in supporting the economy.
She also said there is a global shift, driven mainly by emerging markets “from external demand to domestic demand, from investment to consumption and from manufacturing to services”.
The emergence of trade conflicts and technology are disrupting economic trends where emerging economies have relied on global trade and supply chains to boost their growth, the former head of the International Monetary Fund (IMF) said. This is also the case in Europe, Lagarde added.