ECB President Christine Lagarde sounded a note of caution at the World Economic Forum in Davos, highlighting renewed global economic uncertainty fueled by recent geopolitical developments. She emphasized that market volatility has intensified, with financial indicators reflecting growing investor unease.
- CBOE Volatility Index (VIX) surged 38% to 27.4 in early January 2026
- Eurozone 10-year bond yields widened by 12 basis points amid rising risk premiums
- Germany's HICP inflation at 3.8%, France's at 4.1% as of December 2025
- STOXX Europe 600 index declined 6.2% in January 2026
- European equities in export-heavy sectors down 4.5% month-to-date
- ECB maintains stance on inflation control despite policy uncertainty
At the World Economic Forum in Davos on January 20, 2026, ECB President Christine Lagarde underscored the return of macroeconomic uncertainty as a defining challenge for central banks. Speaking during a panel on global financial stability, she cited escalating trade policy threats and shifting diplomatic dynamics as key destabilizing forces. 'The window of predictability has narrowed,' Lagarde stated, noting that markets are reacting more sharply to geopolitical signals than in previous years. Recent data from major financial indices show a marked increase in volatility: the CBOE Volatility Index (VIX) rose 38% over the past two weeks, reaching 27.4 — its highest level since late 2023. Meanwhile, the euro-denominated Eurex bond futures contract saw a 12 basis point widening in yield spreads across the 10-year benchmark, signaling heightened risk premiums. These movements coincide with a 6.2% decline in the STOXX Europe 600 index’s value in the first three weeks of January, driven largely by concerns over potential protectionist measures. Lagarde reiterated the ECB's commitment to maintaining price stability but cautioned against premature normalization of monetary policy. She emphasized that inflation remains above target in several core Eurozone economies, with Germany's HICP inflation sitting at 3.8% and France's at 4.1% as of December 2025. Despite these figures, she stressed that 'uncertainty about future policy direction' could impair the effectiveness of any rate adjustments. The implications are broad: financial institutions are reevaluating credit exposure, while multinational corporations are delaying capital investment decisions. European equities, particularly in export-dependent sectors like automotive and machinery, are under pressure, with sector-specific indices down 4.5% month-to-date. Investors are now pricing in a higher probability of policy divergence among G7 central banks, reinforcing the need for coordinated communication.