The economy of the 17 nations that share the single euro currency is weak and the European Central Bank (ECB) expects growth to remain weak next year.
The ECB, which earlier held its benchmark refinancing rate unchanged at 0.75 percent, said inflation is expected to remain above 2.0 percent for the rest of 2012, due to high energy prices and taxes, but then fall below that level next year and remain in line with the bank's price stability target.
ECB President Mario Draghi said economic activity continues to be supported by the bank's policy stance and confidence in financial markets has "visibly improved" since the announcement of the Outright Monetary Transactions (OMT) programme, which he said the bank is ready to undertake to avoid extreme scenarios and avoid worries over the impact of destructive forces.
But the economy remains weak and Draghi said data continued to signal weak activity in the second half of this year.
"While industrial production data showed some resilience in July/August, most recent survey evidence for the economy as a whole, extending into the fourth quarter, does not signal improvements towards the end of the year," Draghi told a press conference.
The euro zone economy contracted by 0.2 percent in the third quarter from the second quarter for an annual decline in Gross Domestic Product of 0.4 percent.
"Looking ahead to next year, the growth momentum is expected to remain weak," he said, adding that the risks surrounding the outlook remain on the downside.
Annual inflation in the euro zone was 2.5 percent in October, above the ECB's target of inflation below but close to 2.0 percent, but Draghi said underlying price pressures should remain moderate given modest growth and well-anchored expectations.
Current levels of inflation should thus remain transitory," Draghi said.