November 11 (SeeNews) - The European Commission said on Thursday it expects Croatia's gross domestic product (GDP) to expand by a real 8.1% this year, improving its projection for 5.4% growth made in July.
“The recovery of Croatia’s economy continued in 2021, mostly supported by strong private consumption and a better-than-expected performance of the tourism sector,” the Commission said in its Autumn 2021 European Economic Forecast publication.
For 2022, the Commission revised downwards its projection for Croatia's economic growth to 5.6% from 5.9% predicted in July.
Consequently, the volume of GDP should reach its 2019 level during 2022, while in 2023 the GDP will grow by 3.4%, the EU's executive arm said.
Croatia's economic output contracted by 8.1% last year.
Key downside risks stem from Croatia’s relatively low vaccination rates, which could lead to stricter containment measures, and continued delays of the earthquake-related reconstruction, according to the Commission. On the upside, potential entry into the Schengen area and euro adoption towards the end of the forecast period could benefit investment and trade.
The Adriatic country hopes to be ready to join the eurozone in 2023.
After reaching 7.5% in 2020, the unemployment rate is expected to gradually decline throughout the forecasting period, to 6.7% this year, 6.2% next year and 5.8% in 2023.
“Employment is expected to reach its pre-crisis level already in 2021. In the forecast horizon, labour market dynamics are expected to be driven by the overall expansion of economic activity, the expected acceleration of the investment cycle and Recovery and Resilience Plan-sponsored active labour market policies,” the Commission said.
Inflation is expected to accelerate, reaching 2.2% in 2021, to be followed by a gradual stabilisation at 2.0% next year and 1.5% in 2023. Key factors behind this surge in prices are rising energy and food prices, triggered by global and European-specific factors, the Commission said, adding that although these are deemed transitory, risks of more persistent inflation are still present.
In 2021, the general government deficit is set to narrow to 4.1% of GDP from 7.4% in 2020, thanks largely to the strong economic recovery and the gradual phasing out of support measures. The Commission expects the general government deficit to shrink to 2.9% next year and 2.1% in 2023.
“Despite these mounting headwinds, the EU is projected to keep expanding over the remainder of the year, achieving a growth rate of 5.0% for 2021,” the Commission said. It expects the EU's economy to grow by 4.3% next year and by 2.5% in 2023.