(Adds COVID herd immunity projection) FRANKFURT, Dec 10 (Reuters) - The ECB expects economic growth to rebound more slowly next year as COVID-19 weighs on output, but the recovery could be quicker than thought in 2022 as vaccines bring herd immunity against the virus, its President Christine Lagarde said on Thursday. In what it describes as the baseline scenario, the European Central Bank said in updated economic projections that it expected GDP to expand by 3.9% percent next year, slower than its September forecast of 5%. But in 2022, growth is seen at 4.2%, above a previous projection of 3.2%, Lagarde said. Developments in the pandemic including projected vaccine rollouts gave the ECB "good reasons to believe that by the end of 2021... we will have reached sufficient herd immunity to hope that ... the economy will begin to function under more normal circumstances", she added. That was particularly the case for the service sector that "will not be impaired by a lot of these social distancing and restrictions that apply to it at the moment," Lagarde told the bank's post-policy meeting news conference. That projection also explained why the ECB had extended its Pandemic Emergency Purchase Programme by nine months to March 2022, she said. The ECB's updated forecasts see inflation next year at 1%, unchanged from its last projection, while in 2022, inflation is seen at 1.1% against 1.3% seen three months ago. In the bank's initial projection for 2023, inflation is expected to rise to 1.4%, still well short of the ECB's target of almost 2%. Lagarde said risks to the euro zone economy remained tilted to the downside but had become less pronounced. The following are the ECB's quarterly growth and inflation projections through 2023. Figures in brackets are the ECB's previous forecasts from September. For 2023, the ECB is providing forecasts for the first time. 2020 2021 2022 2023 GDP growth -7.3% (-8.0%) 3.9% (5.0%) 4.2% (3.2%) 2.1% Inflation 0.2% (0.3%) 1.0% (1.0%) 1.1% (1.3%) 1.4% (Reporting by Balazs Koranyi; Editing by Catherine Evans and John Stonestreet)
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