The European economy is rebounding from the pandemic recession faster than expected, however, the rise in inflation has exceeded all expectations, the European Commission said in its autumn forecast released on Thursday.

The EU economy is projected to keep expanding over the forecast horizon, achieving a growth rate of 5%, 4.3% and 2.5% in 2021, 2022 and 2023 respectively. Growth rates for the euro area are projected at 5% in 2021 and 2022, and at 2.4% in 2023.

“As vaccination campaigns progressed and restrictions started to be lifted, growth resumed in spring and continued unabated through summer, underpinned by the re-opening of the economy,” the EC said in a press release published on its website.

“This outlook depends heavily on two factors: the evolution of the COVID-19 pandemic and the pace at which supply adjusts to the rapid turnaround in demand following the re-opening of the economy.”

All member states have registered an increase in GDP but with varied rates, ranging from 2.7% in Germany and 3% in the Czech Republic while on the other hand, Ireland’s GDP is expected to grow by 14.6%, Estonia’s by 9% and Croatia’s by 8.1%.

At almost 14% in annual terms, the rate of GDP growth in the EU in the second quarter of 2021 was the highest reading on record – as high as the unprecedented fall in GDP in the same period last year, during the first wave of the pandemic. The EU economy regained the pre-pandemic output level in the third quarter of 2021 and moved from recovery into expansion, the press release notes.

Nevertheless, the growth momentum is facing new headwinds. Bottlenecks and disruptions in global supply are weighing on activity in the EU, in particular in its highly integrated manufacturing sector. Moreover, after having fallen sharply in 2020, energy prices, particularly for natural gas, have increased at a tumultuous pace over the last month and are now well above pre-pandemic levels.

Annual inflation in the euro area rose from a negative -0.3% in the last quarter of 2020, to 2.8% in the third quarter of 2021. The October reading was 4.1%, a rate matched only once since the publication of euro area inflation data began in 1997, the EC reported.