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The skyline with the financial district, in Frankfurt, Germany, on April 22, 2020.Kai Pfaffenbach/Reuters

The euro-zone economy will grow faster than previously expected this year as it recovers from the pandemic-induced recession and continues to expand strongly in 2022 with deficits and public debt falling, the European Commission forecast on Thursday.

The Commission said gross domestic product in the 19 countries sharing the euro would grow 5.0 per cent this year after a 6.4-per-cent recession in 2020. It forecast growth of 4.3 per cent in 2022 and 2.4 per cent in 2023. Its forecast in May for 2021 growth was only 4.3 per cent.

“Our measures to cushion the blow of the pandemic and to ramp up vaccinations across the EU have clearly contributed to this success,” European Commission Vice-President Valdis Dombrovskis said.

The Commission said inflation would reach 2.4 per cent in 2021, up from 0.3 per cent in 2020, before slowing to 2.2 per cent in 2022 and 1.4 in 2023. The peak in price increases is to come in the last four months of this year, and then slow gradually throughout 2022.

The fast growth and the gradual withdrawal of emergency government support for the economy will help reduce the aggregate budget deficit of the euro zone to 7.1 per cent of GDP this year from 7.2 per cent in 2020 and then to 3.9 per cent in 2022 and 2.4 per cent in 2023, the Commission forecast said.

Public debt, which is to peak at an aggregate 100 per cent of GDP for the euro zone this year, is to fall to 97.9 per cent in 2022 and 97.0 per cent in 2023 – a faster reduction than forecast in May.

“There are three key threats to this positive picture: a marked increase in COVID cases, most acute in areas where vaccinations are relatively low; rising inflation, driven largely by a spike in energy prices; and supply-chain disruptions that are weighing on numerous sectors,” European Economic Commissioner Paolo Gentiloni said.

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