. 1 pp and remains in the expansionary zone at 57. 9. under this baseline scenario, euro area gdp was projected to shrink by 7. 3 % in 2020 then grow by 3. 9 % in 2021, one point less than projected in september. drawing on the preliminary estimate of the euro area national accounts, gdp ultimately appears to have decreased by 6. 8 % year - on - year in 2020, somewhat less than expected. as regards the euro area ’ s inflation outlook, the ecb projected a slight recovery for 2021, increasing from 0. 2 % in 2020 — it ultimately rose by 0. 3 % — to 1 %. this recovery would continue in 2022 and 2023 ( to 1. 1 % and 1. 4 %, respectively ). however, these values are far below the objective of price stability, which is defined as inflation of below, but close to, 2 % in the medium term. the latest data, referring to the february estimate, for the euro area ’ s harmonised index of consumer prices show a year - on - year increase of 0. 9 %, the same figure as in january. the smaller drop in energy prices appears to have been offset, in the context of rising oil prices, by moderation in the core component ( which excludes energy and food ). the latter fell by 0. 3 pp with respect to january to 1. 1 %. this outcome was determined in particular by temporary factors, such as the updated hicp weights, which since january are based on 2020 consumption patterns and which, although they will have a very marginal downward moderating effect on the year as a whole, will have a considerable impact on short - term inflation dynamics, making them difficult to interpret. also, the pandemic containment measures appear to be changing the seasonal sales calendar in various countries. the situation i have just described is, therefore, one of a fragile, uneven and uncertain recovery in the euro area, where some of the downside risks for our short - term baseline scenario, which were identified just a few months ago, appear to be materialising. against the current backdrop of uncertainty surrounding both the course of the pandemic and the speed of the vaccination campaigns, the best contribution that economic policy can make is to instil confidence and certainty. with regard to monetary policy, this is precisely one of the key rationales behind the ecb governing council ’ s decisions and recent statement. specifically, last december we extended

potential conflict between real and nominal convergence has often been exaggerated. the two processes have different time horizons, nominal convergence being achievable in the medium - run, whilst real convergence remains a long - run matter. there is, however, one particular link between the two processes that needs to be taken into account when we design our policies towards emu accession. faster gdp growth is likely to lead to a real exchange rate appreciation, making it impossible to have both very low inflation and a completely stable nominal exchange rate. this issue is well known and has received much attention. at the current stage of development, however, we need to shift from purely qualitative judgements to quantitative analyses of what has caused the real exchange rate appreciation trends in many accession countries. for example, the majority of empirical studies of the well - known balassa - samuelson effect have concluded that this hypotheses explains only 1 - 2 percentage points ( or even less ) a year of the observed real appreciation in central european countries. this necessitates searching for other influential factors and forecasting their development for the future. the implications of the real appreciation process are probably different for those countries with hard pegs against the euro compared with countries that have floating exchange rates. in the case of currency boards, the only channel of real appreciation is an inflation differential. as the maastricht inflation criterion is relatively strict, even a relatively modest pace of real appreciation might lead to complications. it will be certainly interesting to hear today if these countries really perceive this challenge as serious and what alternative policies - such as fiscal policies and / or income policies they can use to overcome the problem successfully. for countries with more flexible exchange rates, the maastricht exchange rate criterion is less binding, and a modest nominal appreciation trend can be accommodated within its fluctuation bands. it will be interesting to hear whether we all share this view. another question is whether we see any implications of the real appreciation process for designing the details of our erm2 membership, such as its duration or the chosen central parity. this brings me to the issue of erm2 membership and its consistency with our current monetary policy regimes. the proponents of the erm2 regime argue that it is a useful monetary policy framework which can have a disciplining impact on domestic policies, limit exchange rate volatility, and help determine the conversion rate for emu entry, but at the same time provides enough flexibility. even though there is no