Please note that these remarks relate to the ECB's activities in 2021 and were finalised before the Russian invasion of Ukraine. The ECB stands ready to take whatever action is needed to safeguard financial stability and fulfil its mandate to ensure price stability.
2021 was the year in which the euro area moved onto a firmer path of recovery from the pandemic emergency. The economy rebounded strongly, with real GDP growing by 5.3%, although growth slowed at the end of the year as the Omicron wave of the coronavirus (COVID-19) led to new restrictions being introduced. The recovery proved job-rich too, with the unemployment rate falling to a record low by year-end.
But the recovery was marked by frictions as the economy rapidly reopened. Though the euro area began 2021 with very low inflation, pandemic-induced supply constraints, a rebound in global demand and surging energy prices meant that inflation increased sharply. Annual headline inflation was 2.6% on average in 2021, compared with just 0.3% in 2020.
The ECB concluded its monetary policy strategy review in 2021. This updated our strategy to address new challenges and provided us with a playbook for managing this complex situation. The Governing Council adopted an inflation target of 2% over the medium term, which is simple and easily understood. It is symmetric, with deviations from the target on both sides seen as equally undesirable. And it is solid, having been agreed by the entire Governing Council.
The Governing Council also agreed on how the ECB would pursue its commitment to symmetry. In particular, when the economy is close to the effective lower bound on policy rates, this requires especially forceful or persistent monetary policy measures to avoid negative deviations from the inflation target becoming entrenched. This new strategy was reflected in our recalibrated forward guidance on interest rates and oriented our policy response to economic developments in the second half of the year.
While the recovery was fragile and inflation subdued, we provided ample monetary support to bring inflation back closer to our target. As inflation rose, we remained patient and persistent in our policy course to avoid tightening prematurely in response to supply-driven shocks. We adjusted the pace of net asset purchases under the pandemic emergency purchase programme (PEPP) in line with the evolving outlook and our assessment of financing conditions.
By December, the Governing Council judged that the progress on economic recovery and towards our medium-term inflation target permitted a step-by-step reduction in the pace of asset purchases over the following quarters. It announced that net asset purchases under the PEPP would end in March 2022, and that its other asset purchase programmes would be gradually scaled back.
As part of the strategy review, the ECB also published an ambitious action plan on climate change, together with a detailed roadmap on how to incorporate climate change considerations into our monetary policy framework. That includes work on how to better capture the implications of a changing climate in our macroeconomic modelling, in addition to the development of new indicators for climate change risk analyses. The ECB's climate change centre - launched in 2021 - will play an important role in coordinating related activities within the bank. And you can now learn all about the ECB's sustainability-related activities and initiatives in a dedicated chapter of this Annual Report.
The ECB made some important changes to its communication too. In July, the Governing Council introduced its new-style monetary policy statement, which communicates its monetary policy decisions in a more accessible way. And the new statement is complemented with a visual version - "our monetary policy statement at a glance" - aimed at the wider public. It explains the ECB's decisions using simple language and relatable visuals and is available in all official EU languages.
Support for the euro is strong, with 79% of euro area respondents to the Eurobarometer survey conducted in June-July 2021 in favour of the single currency. But the euro must be fit for the digital age. That is why in 2021 the Governing Council launched the 24-month investigation phase of a project for a possible digital euro. At the same time, cash will continue to play an important role in people's lives. In December, the ECB announced plans to redesign future euro banknotes, with the design process drawing on input from citizens and the final designs expected to be selected in 2024.
So, changes are afoot for the euro in the years to come. But one thing will remain unwavering throughout: the ECB’s commitment to the single currency and price stability.
