Euro: Domestic demand resilience supports EUR – BNY

BNY’s Geoff Yu highlights European Central Bank (ECB) President Christine Lagarde’s warning that Europe’s post-war growth model is eroding as global trade fragments and cheap energy fades. Lagarde argues Euro area resilience now relies on domestic demand, which drove 2025 growth and Q2 2026 expansion. She stresses the need to deepen the Single Market and capital markets, with AI investment hampered by fragmented regulation and financing.

Lagarde shifts focus to demand

"ECB President Christine Lagarde said Europe's post-war growth model is eroding as global trade fragments, cheap energy disappears and geopolitical risk reshapes investment decisions."

"She argued that the euro area’s resilience increasingly depends on domestic demand, which drove all of last year's 1.5% growth and contributed positively to Q2 2026 expansion of 0.4% q/q."

"The policy challenge is to turn that resilience into higher long-run productivity by deepening the Single Market and integrating capital markets."

"Lagarde highlighted AI as a key test, noting euro area firms expect around 9% of investment to go into AI this year, but fragmented regulation and financing still prevent firms from scaling."

"Her message was that Europe must convert market size into scale, investment and productivity."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)