Frankfurt, Germany—European Central Bank chief Christine Lagarde said on Friday that the potential collapse of the troubled Chinese real-estate giant Evergrande would have a “limited” impact on the eurozone.
Markets plunged at the beginning of the week by fears that Evergrande—one of China’s biggest developers in the crucial property sector—would collapse under debts worth over $300 billion, taking other companies with it and serving a blow to the world economy.
“I have very vivid memories of the latest stock market developments in China that had a bearing across the world,” Lagarde told news channel CNBC.
“But in Europe and in the euro area in particular, direct exposure would be limited,” she said.
The struggles at Evergrande would have a “China-centric impact,” Lagarde said, while officials at the ECB, wary of the interconnected nature of markets, were following developments closely.
The president of Evergrande Xu Jiayin was reported by Chinese state-owned media to have told group managers on Wednesday to “make every effort to fulfil” its payment obligations.
But market observers are keeping close tabs on the battered real estate firm, with no sign that it had paid interest to bondholders on a note due Thursday, though the group has a 30-day grace period to stump up before it is considered in default.
Commenting in the same interview on the risk of persistent inflation in the eurozone, above the ECB’s two-percent target, Lagarde said the bank expected “a return to much more stability in the year to come because many of the causes of higher prices are temporary.”
“A lot of it has to do with energy prices,” the former French finance minister said, as short supply of natural gas in Europe has pushed bills up.
Lagarde also pointed to the end of VAT holidays in Europe, deployed last year to mitigate the economic impact of the coronavirus pandemic, as a temporary driver of inflation.