Europe's economy highly vulnerable to global shocks: Lagarde

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Europe's economy highly vulnerable to global shocks: Lagarde

- The European Central Bank President Christine Lagarde warned that the global nature of the euro area economy makes it highly vulnerable to supply chain disruptions due to Global Warming.

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There are signs that the global economy could more and more become a source of shocks for Europe than a stabilizer against volatility, Lagarde said.

Bottlenecks affect the euro area more than other economies by virtue of our exposure to globalization, she said.

In prepared remarks for the 2021 Lagarde lectures at the International Monetary Fund on Saturday, Lagarde highlighted an issue that is currently upending world commerce, from shipping to semiconductors to food.

The just-in-time inventory management that has driven systemic trade for decades is highly vulnerable to global shocks, Lagarde said.

This imported volatility could increase rather than decrease, she said.

Lagarde warned that the dynamics of global trade may shift as more firms end up holding permanently higher inventories as an insurance policy against disruptions.

There s already evidence that some companies are holding higher levels of foreign inputs that are more difficult to source, she said.

Doing historically long delivery times, global manufacturers stockpiling of inputs continues to run higher than before the pandemic, Lagarde said. If that persists, we could see a more volatile industrial business cycle. What can you do if Donald Trump, Elon Musk and Gwyneth Paltrow short-circuit your ability to think rationally?

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