Lagarde warns that some fiscal policies in the EU could stimulate excess demand

Christine Lagarde, president of the European Central Bank (ECB), sees that some European states' fiscal policies are likely to trigger excess demand. She stressed that fiscal and monetary policies need to work in sync so that economic growth remains both balanced and sustainable.

Overly tight fiscal policy provokes excess demand when supply is relatively weak. It also leads to even tighter monetary policy. Lagarde said this at a conference jointly organized by the Bank of Thailand and the Bank for International Settlements in Bangkok.

It’s assumed that the euro zone economy will deteriorate in the fourth quarter of this year and the first quarter of the next one. This will be due to a significant increase in energy prices and a widespread increase of interest rates. These factors collectively undermine consumer confidence, impair their creditworthiness, and make major spending adjustments.

According to Legarde, uncertainty looms over the world. With an ever-changing economy, all the necessary conditions must be in place to ensure that output remains stable. And with unstable external demand, domestic supply must be closely monitored and strengthened through increased productivity.