##eu ) programme, while political tensions in individual member states have receded and commitment to growth - enhancing reforms within a european framework is rising. there is a good chance that a recovery will take hold in the latter part of this year. 2 / 19 but that is not a justification for policies to run on neutral. there are in fact two imperatives which call for further policy support. first, in a dramatic crisis like this one, macroeconomic policymakers should not bank on the most favourable scenario materialising. their role is to ensure that the worst scenarios are ruled out. as i have argued elsewhere, the pandemic has produced an asymmetric balance of risks, which requires an asymmetric reaction function. this is true of the inflation outlook, where the risk of inflation undershooting our 2 % aim is still very high, while the risk of overshooting is negligible. our december projections had inflation reaching just 1. 4 % in 2023 and core inflation reaching just 1. 2 %. while inflation is expected to rise this year, it will be driven by one - off statistical effects linked to the composition of the consumption basket, as well as base effects following on from previous energy price falls and the unwinding of the vat cut in germany. the increase will therefore be temporary. just as we looked though temporary negative inflation in recent months, we will look through this transitory hump in inflation. the near - term growth outlook is also skewed downward. economic activity is projected to recover only gradually and return to its pre - pandemic level in the course of 2022. and this shallow growth path remains vulnerable to a series of downside risks. the slow rollout of vaccines in the euro area and the spread of new variants of the virus are delaying the full reopening of the economy. this delay – and the uncertainty around it – is likely to depress consumer and investor sentiment. 3 / 19 we are likely to see higher cyclical divergence from the united states, where the recovery will be further supported by significant fiscal stimulus in 2021. this divergence will bring risks of its own : in fact, we are already seeing undesirable contagion from rising us yields into the euro area yield curve. if unaddressed, this would lead to a tightening of financing conditions that is inconsistent with our domestic outlook and inimical to our recovery. how strong the rebound will be, once the economy can finally re

to governments not to underspend relative to the scale of the shock, or withdraw fiscal stimulus too early, out of fear that borrowing costs will tighten prematurely. fiscal policies continue to be a key channel for transmitting monetary policy to the real economy [ 15 ] and they are expected to remain supportive in 2021. we need to maintain this momentum. if ngeu - led investment and national reforms lift potential growth, while demand policies remain expansionary until supply constraints appear, we could generate significantly higher employment, investment and confidence in europe – and possibly even recover some of the potential that we lost in the aftermath of the last crisis. as a rough illustration, if we were able to return to the potential growth trend that we believed was possible only 13 years ago – in 2008 – we would be able to increase output by 14 % today without overheating the economy ( chart 6 ). chart 6 euro area real and potential gdp ( eur billions ) 14 / 19 source : ameco. member states – in particular those with high debt and productivity challenges – need to implement reforms that remove obstacles to doing business and encourage resources to flow to the most productive firms. they need to target investment in technology, education and infrastructure, creating an environment that bolsters growth and supports the sustainability of debt. we have a joint interest in making the european economy more dynamic. [ 16 ] ngeu is an important tool precisely because it ensures that common spending triggers growth - enhancing reforms that subsequently benefit all. if member states seize this opportunity and show commitment to reform, the resulting benefits for all citizens of the eu can pave the way for a further europeanisation of both fiscal and structural policies by building on the instruments developed during the pandemic. 15 / 19 conclusion my main message today can be summed up with the title of a song by the electronic music duo daft punk [ 18 ] : “ harder, better, faster, stronger. ” the harder we push to close the output and inflation gaps, the better the outlook for the euro area economy. and the faster we get there, the stronger our growth potential will be. achieving this will require the right combination of monetary and fiscal support at the eu level, and it will require continued, determined reforms at the national level. it will also require perseverance. we will need to keep going until we see inflation sustainably reaching 2 %, in an environment of robust growth and rising employment. for these reasons, policy support will have to remain in place