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EU Commission raises 2021 euro zone growth forecast, sees strong 2022

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BRUSSELS (Reuters) - The euro zone economy will grow faster than previously expected this year as it recovers from the pandemic-induced recession and continue 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% this year after a 6.4% recession in 2020. It forecast growth of 4.3% in 2022 and 2.4% in 2023. Its forecast in May for 2021 growth was only 4.3%.

"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% in 2021, up from 0.3% in 2020, before slowing to 2.2% 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% of GDP this year from 7.2% in 2020 and then to 3.9% in 2022 and 2.4% in 2023, the Commission forecast.

Public debt, which is to peak at an aggregate 100% of GDP for the euro zone this year, is to fall to 97.9% in 2022 and 97.0% 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.

(Reporting by Jan Strupczewski)

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