The German is projected to grow faster than previously estimated on the expectation that the vaccination campaign will suppress the pandemic quickly and sustainably, Bundesbank said in its bi-annual report released Friday.
The central bank forecast the largest euro area economy to expand 3.7 percent in 2021 versus 3 percent projected earlier. The outlook for 2022 was raised to 5.2 percent from 4.5 percent.
In 2023, real GDP growth is set to lose momentum, but will still grow 1.7 percent, Bundesbank said.
"The German economy is overcoming the coronavirus crisis," Bundesbank President Jens Weidmann said. Economic activity could return to its pre-crisis level as early as this summer, he said.
On price developments, the bank said inflation this year is being shaped by the return to higher rates of VAT, the new CO2 emission certificates, and the steep rise in prices for both crude oil and food.
The banker said inflation rates could temporarily hit the 4 percent mark towards the end of the year.
The harmonized inflation is seen at 2.6 percent in 2021, well above the previous forecast of 1.8 percent. Inflation is expected to ease to 1.8 percent in 2022 and to 1.7 percent in 2023.
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