as broadly balanced. on the one hand, an even stronger recovery could be predicated on brighter prospects for global demand and a faster - than - anticipated reduction in household savings once social and travel restrictions have been lifted. on the other hand, the ongoing pandemic, including the spread of virus mutations, and its implications for economic and financial conditions continue to be sources of downside risk. according to eurostat ’ s flash release, euro area annual inflation increased from 1. 3 per cent in march to 1. 6 per cent in april and 2. 0 per cent in may 2021. this rise was due mainly to a strong increase in energy price inflation, reflecting both sizeable upward base effects as well as monthon - month increases, and, to a lesser extent, a slight increase in non - energy industrial goods inflation. headline inflation is likely to increase further towards the autumn, reflecting mainly the reversal of the temporary vat reduction in germany. inflation is expected to decline again at the start of next year as temporary factors fade out and global energy prices moderate. we expect underlying price pressures to increase somewhat this year owing to temporary supply constraints and the recovery in domestic demand. nevertheless, the price pressures will likely remain subdued overall, in part reflecting low wage pressures, in the context of still significant economic slack, and the appreciation of the euro exchange rate. once the impact of the pandemic fades, the unwinding of the high level of slack, supported by accommodative monetary and fiscal policies, will contribute to a gradual increase in underlying inflation over the medium term. survey - based measures and market - based indicators of longerterm inflation expectations remain at subdued levels, although market - based indicators have continued to increase. this assessment is broadly reflected in the baseline scenario of the june 2021 eurosystem staff macroeconomic projections for the euro area, which foresees annual inflation at 1. 9 per cent in 2021, 1. 5 per cent in 2022 and 1. 4 per cent in 2023. compared with the march 2021 ecb staff macroeconomic projections, the outlook for inflation has been revised up for 2021 and 2022, largely owing to temporary factors and higher energy price inflation. it is unchanged for 2023, as the increase in underlying inflation is largely counterbalanced by an expected decline in energy price inflation. hicp inflation excluding energy and food is projected to increase from 1. 1 per cent in 2021 to 1. 3 per cent in 2022 and 1

##ity through our refinancing operations. the funding obtained through the third series of targeted longer - term refinancing operations ( tltro iii ) plays a crucial role in supporting bank lending to firms and households. our measures help to preserve favourable financing conditions for all sectors of the economy, which is needed for a sustained economic recovery and for safeguarding price stability. we will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium - term inflation outlook. we stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner, in line with our commitment to symmetry. let me now explain our assessment in greater detail, starting with the economic analysis. in the first quarter of the year, euro area real gdp declined further, by 0. 3 per cent, to stand 5. 1 per cent below its pre - pandemic level of the fourth quarter of 2019. business and consumer surveys and high - frequency indicators point to a sizeable improvement in activity in the second quarter of this year. business surveys indicate a strong recovery in services activity as infection numbers decline, which will allow a gradual normalisation of high - contact activities. manufacturing production remains robust, supported by solid global demand, although supply - side bottlenecks could pose some headwinds for industrial activity in the near term. indicators of consumer confidence are strengthening, suggesting a strong rebound in private consumption in the period ahead. business investment shows resilience, despite weaker corporate balance sheets and the still uncertain economic outlook. we expect growth to continue to improve strongly in the second half of 2021 as progress in vaccination campaigns allows a further relaxation of containment measures. over the medium term, the recovery in the euro area economy is expected to be buoyed by stronger global and domestic demand, as well as by continued support from both monetary policy and fiscal policy. this assessment is broadly reflected in the baseline scenario of the june 2021 eurosystem staff macroeconomic projections for the euro area. these projections foresee annual real gdp growth at 4. 6 per cent in 2021, 4. 7 per cent in 2022 and 2. 1 per cent in 2023. compared with the march 2021 ecb staff macroeconomic projections, the outlook for economic activity has been revised up for 2021 and 2022, while it is unchanged for 2023. 2 / 4 bis central bankers'speeches overall, we see the risks surrounding the euro area growth outlook