ECB President Christine Lagarde has forecast a strong recovery in 2021.

Speaking at the press conference following the ECB policy meeting on Thursday, Lagarde said:

“The ongoing vaccination campaigns, together with the gradual relaxation of containment measures barring any further adverse development related to the pandemic, underpin the expectation of a firm rebound in economic activity in the course of 2021.”

However, the first quarter of this year is likely to be weak.

“Incoming economic data… point to continued economic weakness in the first quarter of 2021, driven by the persistence of the pandemic and the associated containment measures. As a result, real GDP is likely to contract again in the first quarter of the year,” Lagarde warned.

Inflation is expected to remain subdued.

“Inflation has picked up over recent months, mainly on account of some transitory factors and an increase in energy price inflation. At the same time, underlying price pressures remain subdued in the context of weak demand and significant slack in labour and product markets.

While our latest staff projection exercise foresee a gradual increase in underlying inflation pressures, it confirms that the medium-term inflation outlook remains broadly unchanged from the staff projections in December 2020, and below our inflation aim.

Once the impact of the pandemic fades, the unwinding of the high level of slack supported by accommodative fiscal and monetary policies will contribute to a gradual increase in inflation over the medium-term.

In these conditions, preserving favourable financing conditions over the pandemic period remains essential to underpin economic activity and safeguard medium-term price stability,” Lagarde explained.

There is, of course, still uncertainty due to the ongoing vaccination rollout.

“The rebound in global demand and additional fiscal measures are supporting global and euro area activity. But persistently high rates of coronavirus infection, the spread of virus mutations and the associated extension and tightening of containment measures are weighing on euro area economic activity in the short-term,” she noted.