In its winter forecast--published in February--the commission said Luxembourg GDP should grow 3.2%, expecting most of the pandemic recovery to take place in the second half of this year.

It has now revised this figure to 4.5% economic growth, albeit downgrading the forecast for 2022 at the same time, from 4.3% to 3.3% GDP growth.

“As more of the population is vaccinated, restrictions should be gradually lifted further from the second quarter of 2021,” the commission said in its report. “The increase in private consumption allowed by the easing of restrictions, combined with the strong fundamentals of the Luxembourg economy, will fuel renewed economic growth.”

The recovery is not set in stone, however. “Possible risks relate to the consequences of a rise in the level of bankruptcies in the most affected sectors and the impact of the new EU-UK trade relationship on international trade in financial services,” the commission said. “This is especially important for Luxembourg given the importance of its financial sector and trade in financial services relative to GDP.”

The grand duchy has so far staved off a wave of bankruptcies but the number of businesses folding is expected to rise as government pandemic support measures run out.

Luxembourg, together with Denmark, is the only country expected to run a deficit of less than 3% of GDP this year. Public debt to GDP should rise to 27%, the commission said. It also expects unemployment to rise, from 6.8% last year to 7.4% this year, recovering only slightly to 7.3% next year.

Across the euro area, the commission expects economic growth of 4.3% in 2021, up from an earlier estimate of 3.8%, and 4.4% in 2022, up from the winter forecast of 3.8%.

For the EU as a whole, the spring forecast anticipates GDP growth of 4.2% this year (up from 3.7%) and 4.4% in 2022 (up from 3.9%).

“The shadow of covid-19 is beginning to lift from Europe's economy. After a weak start to the year, we project strong growth in both 2021 and 2022,” said the EU’s commissioner for the economy, Paolo Gentiloni, in a statement.

“Maintaining the now strong pace of vaccinations in the EU will be crucial – for the health of our citizens as well as our economies. So let's all roll up our sleeves,” he said.