Economic activity slowed in the fourth quarter of this year and the period of moderate economic growth is likely to continue into early next year, European Central Bank (ECB) President Christine Lagarde said during a press conference following a meeting held today.

“We expect GDP growth to surpass the pre-pandemic level in the first quarter of 2022,” the ECB head said.

In turn, inflation will remain above 2% for most of 2022. It is expected to remain high in the near term but start to slow over the next year, Lagarde noted.

“The rise in inflation mainly reflects sharp increases in fuel, gas and electricity prices,” Lagarde said.

Demand continues to outstrip supply in a number of sectors, she said. The effects are particularly reflected in the prices of durable goods and segments of consumer services that have only recently resumed operations.

Risks to the outlook for the economy as a whole remain balanced. Economic activity could exceed the ECB’s expectations if consumers become more confident about the economy and increase their spending power. At the same time, a worsening pandemic situation, including the spread of new variants of the coronavirus, could put longer-term pressure on economic growth, Lagarde said.

The ECB at the end of its meeting on Thursday expectedly kept the benchmark lending rate at zero, the deposit rate at minus 0.5%.

The marginal lending rate was left at 0.25%.The ECB Governing Council expects key rates to remain at current levels or lower until inflation reaches 2% substantially before the end of the forecast horizon and hold steady at this level until the end of the forecast period. The ECB Governing Council will continue to buy assets under the Pandemic Emergency Purchase Program (PEPP) in the first quarter of 2022 at a more moderate pace than in the previous quarter. Asset purchases under the program will stop at the end of March 2022, the ECB said in a statement. At the same time, the ECB decided to extend the timing of reinvestment of proceeds from redeemable bonds under PEPP until at least the end of 2024.

 In addition, the ECB decided to accelerate the pace of implementation of the Asset Purchase Program (APP) launched earlier. The ECB will buy €40 billion of assets per month in the second quarter of 2022 and €30 billion in the third quarter of 2022. From October 2022 onwards, the ECB will repurchase assets under the APP by €20 billion per month. The asset purchases will continue for as long as necessary to enhance the stimulative effect of interest rates and will end shortly before the Central Bank starts to raise key interest rates.