ROME (Reuters) - The Italian economy will grow by close to 5% this year, the Bank of Italy said on Friday, raising a previous forecast due to the improving coronavirus situation and an upward revision to first quarter gross domestic product data. The central bank’s latest projection, part of a regular forecasting exercise coordinated by the European Central Bank, is above the most recent estimate by the Italian government, which forecast growth of 4.5% in April. The Bank of Italy said growth next year would ease to 4.5%, slightly below the government’s 4.8% projection. In both years, the expansion will be driven by investments, which will “rise significantly” thanks to reduced uncertainty connected to the COVID-19 pandemic, low interest rates and projects funded by the European Union’s Recovery Fund. The bank said its official forecast for 2021 was for growth of 4.4%, but this was drawn up before an unusually strong upward revision to first quarter GDP data which would raise average growth by “more than half a percentage point.” On June 1 national statistics bureau ISTAT reported Q1 GDP growth of 0.1% from the previous quarter, hiking a preliminary estimate of a 0.4% contraction. The central bank’s latest forecasts reflect a steadily improving outlook for the euro zone’s third largest economy. In April, it said growth this year would probably be above 4%, while in January, when it made its last official projection, it estimated growth of 3.5%. The economy contracted by 8.9% last year, Italy’s steepest post-war recession, when activity was hobbled by repeated coronavirus lockdowns. Italian GDP would return to its pre-pandemic level some time next year, the central bank said. It forecast that Italian consumer price inflation, based on the EU-harmonised index, would average 1.3% this year and 1.2% in 2022, following the 0.1% price decline last year. The jobless rate will average 10.2% this year and 9.9% in 2022, the bank’s bulletin said. Reporting By Gavin Jones Our Standards: The Thomson Reuters Trust Principles.