##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

emu. these developments support the assessment of a slower underlying pace of monetary expansion and low inflationary pressures over the medium term. the declining pace of monetary expansion since the last quarter of 2008 continues to be accompanied by volatility in the short - term developments of m3 and its components. this reflects to a large extent the impact that absolute and relative changes in interest rates have had on the allocation of funds between financial investments inside and outside m3 and between the different deposit categories within m3. in this respect, the shift in allocation from short - term time deposits to overnight deposits within m3 has led to a further substantial strengthening of annual m1 growth in june. the flow of bank loans to the non - financial private sector remained subdued in june, albeit with differences across borrowing sectors. the flow of loans to non - financial corporations turned substantially more negative owing to a sharp contraction in short - term lending. at the same time, the flow of loans to households was slightly more positive than last month. the ongoing uncertainty seems to have dampened borrowers ’ demand for financing. however, according to the latest euro area bank lending survey, lenders tightened their credit standards to a significantly lesser extent. given the challenges that lie ahead, banks should take appropriate measures to strengthen further their capital bases and, where necessary, take full advantage of government measures to support the financial sector, particularly as regards recapitalisation. to sum up, the information and analyses that have become available since our meeting on 2 july 2009 confirm the view of the governing council that the current key ecb interest rates remain appropriate. as anticipated, annual hicp inflation in july fell further into negative territory, reflecting mainly temporary effects. after a return to positive inflation rates during the second half of the year, we continue to expect price developments to remain subdued over the policy - relevant horizon. recent data releases and survey information still suggest that economic activity over the remainder of this year is likely to remain weak, although the pace of contraction is clearly slowing down. this assessment takes into account adverse lagged effects, such as a further deterioration in labour markets, which are likely to materialise over the coming months. looking ahead into next year, after a phase of stabilisation, a gradual recovery with positive quarterly growth rates is expected. available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the governing council ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. a cross - check of