-- European Central Bank's President Christine Lagarde said Monday that a 13% global oil supply hit is fueling inflation risks and slowing growth amid ongoing geopolitical disruptions.
Lagarde delivered the remarks at the annual reception of the Association of German Banks.
Lagarde said the economic outlook remains highly uncertain due to the stop-start nature of the conflict, making it difficult to assess how long disruptions and their effects will last.
She said there is no simple return to pre-conflict conditions, with projections already pointing to higher inflation and slower growth across baseline and downside scenarios.
The euro area faces a major supply shock, with oil losses estimated at about 13 million barrels per day, she said.
Despite the scale of disruption, energy prices have not yet risen enough to fully trigger worst-case scenarios, as markets expect the shock may be temporary, Lagarde said.
She added that if the conflict eases quickly, the economic impact could remain contained, though risks remain tilted to the downside if disruptions persist.
Lagarde warned prolonged disruption could widen supply-demand gaps and affect key industries, including semiconductors, food, chemicals, and plastics, due to shortages of critical inputs.
She said extended shortages could shift the impact from higher prices to outright rationing, which would directly hit economic output and worsen growth prospects.
While global supply chains remain broadly stable, localized strains are emerging, with jet fuel prices doubling and some airports already facing rationing measures.
Lagarde said monetary policy faces uncertainty, with outcomes depending heavily on how long disruptions last and how energy costs feed into broader inflation.
She noted inflation pass-through may be influenced by recent price shocks, raising sensitivity, but weaker demand could limit broader price and wage increases.
Lagarde added that fiscal policy will play a key role, with price controls lowering inflation but weakening incentives to reduce energy use, while income support risks boosting demand.
She said past measures, which totaled about 1.7% of GDP, helped cushion households but also prolonged inflation and complicated monetary policy efforts.
Lagarde emphasized that future support must be targeted and temporary, warning that broad fiscal intervention risks undermining public finances and worsening inflation pressures.