The Irish economy is forecast to grow 7.2 per cent this year and by a further 5.1 per cent in 2022, according to a new European Commission report.
The update comes as the EU overall expects to see most rapid expansion seen since 1976, although back then it contained far fewer nations.
The EU economy was hit by a 6 per cent contraction last year, the worst since it was formed.
In its summer 2021 economic forecast, the commission has revised up its Irish GDP growth expectation sharply from 4.6 per cent for this year due to a stronger-than-expected first quarter performance.
Last year, the economy grew by 3.4 per cent despite the Covid crisis.
The revised guidance for the State comes on the back of significant progress in the rollout of Covid vaccines in the second quarter which has resulted in a gradual relaxation of restrictions and an uptick in domestic demand.
The commission has said it expects 5.1 per cent GDP growth here in 2022, a slight increase from a previous forecast of 5 per cent in May.
The revised guidance would see the Republic experience the second highest growth level in the European Union, coming in just behind Romania, which has expected growth of 7.4 per cent.
Germany will log growth of 3.6 per cent this year, while France will expand by 6 per cent and Italy by 5 per cent, the commission forecast.
Across member states of the euro zone, gross domestic product will also expand by 4.8 per cent this year and by 4.5 per cent in 2022, the commission said, compared with previous forecasts of 4.3 per cent and 4.4 per cent.
That would take real GDP back to its pre-crisis level in the final quarter of this year – sooner than the commission had predicted as recently as this spring.
Inflation
In its summer forecast, the commission predicted consumer prices in Ireland would rise 1.5 per cent this year and by 1.2 per cent in 2022. Both figures are below the expectations for the broader euro zone where inflation is forecast to rise 1.9 this year, falling back to 1.4 per cent in 2022.
The commission has also updated growth forecasts for the euro zone to 4.8 per cent from an earlier guidance of 4.3 per cent. It expects growth of 4.5 per cent next year.
"The European economy is making a strong comeback with all the right pieces falling into place," said Valdis Dombrovskis, European Commission executive vice-president. "Our economies have been able to reopen faster than expected thanks to an effective containment strategy and progress with vaccinations.
“Trade has held up well, and households and businesses have also proven to be more adaptable to life under Covid-19 than expected.”
However, economics commissioner Paolo Gentiloni warned that it was “essential” for member states to “maintain policy support as long as needed” in order to “keep the recovery on track”.
“We must redouble our vaccination efforts, building on the impressive progress made in recent months; the spread of the Delta variant is a stark reminder that we have not yet emerged from the shadow of the pandemic,” he said. – Additional reporting: The Financial Times Limited 2021
