Lagarde: Downside Growth Risks, Upside Inflation Risks

Looking at the risks to the outlook, Lagarde eyes downside growth risks and upside inflation risks, followed by discussion of the financial sector outlook:

• The incoming data confirm that risks to the economic outlook are clearly to the downside, especially in the near term.
• A long-lasting war in Ukraine remains a significant risk. Supply side constraints could worsen again. Energy and food costs could remain persistently high for longer than expected.
• The risks to the inflation outlook are primarily to the upside with retail energy prices being the main risk.
• Bank funding costs are increasing due to the rise in market rates.
• Bank lending to firms remain robust as they must finance high production costs and build up inventories. Demand for loans to finance investment has continued to decline. Lending to households is moderating as credit standards have tightened and demand has fallen owing to rising rates and weakening confidence.
• Banks expect to continue tightening credit standards in Q4.