November 4 (SeeNews) - Croatia's economy is expected to expand by 8% this year, the European Bank for Reconstruction and Development (EBRD) said on Thursday, improving its previous forecast made in June.
In 2022, Croatia's economy is expected to expand by 4.2%, the bank said in its latest Regional Economic Prospects report.
In the June edition of the report, the bank projected Croatia's growth at 6.0% in 2021 and at 4.5% in 2022.
Downside risks are related to the weakening external outlook and possible containment measures as the vaccination rate lags behind the EU average, the bank noted.
The Covid-19 pandemic inflicted significant damage on the Croatian economy last year, as GDP declined by 8.4%, with private consumption, net exports and investment recording negative contributions to growth. In spite of a 0.2% decline quarter-on-quarter in the second quarter of 2021, the GDP recovery in the first half of 2021 has been broad-based, reaching 7.5% growth year-on-year, EBRD said. A highlight was the performance of goods exports, which were 21% higher in the second quarter of 2021 than the second quarter of 2019 after a marginal decline in 2020, signalling improved trade integration with EU markets, the lender added.
Domestic demand was resilient as well, as both consumption and investment rebounded by 18% year-on-year in the second quarter, although the latter declined in quarterly terms.
Tourism, which normally accounts for some 20% of GDP, has also recovered above expectations during the summer of 2021.
On the fiscal side, the government balance stood at -2.4% of GDP by August, on the back of a strong revenues rebound.
Energy prices are affecting the economy only to a certain degree, as the government will look to limit any price increases to the population, including by capping fuel prices. Nevertheless, inflation rose to 3.3% in September, an eight-year high, driven by food prices and transport costs.