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EC cuts Croatia's GDP growth forecast for 2022, 2023

Author Annie Tsoneva
EC cuts Croatia's GDP growth forecast for 2022, 2023 EU Commission headquarters in Brussels; Author: Radomir Ralev

ZAGREB (Croatia), May 16 (SeeNews) - The European Commission on Monday said it expects Croatia's gross domestic product (GDP) to expand by a real 3.4% this year, lowering its projection for a 4.8% growth made in February.

“After a strong rebound of the economy in 2021, with a growth rate of 10.2%, GDP growth in 2022 is expected to be more modest but still solid at 3.4% as the direct exposure of the Croatian economy to the effects of Russia’s military aggression against Ukraine is limited,” the EC said in its European Economic Forecast, Spring 2022.

Private consumption is forecast to grow by 2.4%, lower than previously expected, due to rising consumer prices and uncertainty, which increases precautionary savings.

On the other hand, the implementation of the recovery and resilience plan (RRP), and the acceleration of post-earthquake reconstruction should push investment growth to 6.5%, despite the drag induced by the rising costs of materials, supply bottlenecks and increased uncertainty.

Government consumption should retain its positive contribution to economic growth, with a growth rate of around 2.5%.

Exports of goods are expected to be affected by weaker demand in main trading partners, but the growth rate should remain solid, at around 5%. The growth of exports of services should be mostly driven by tourist activity, which is expected to converge towards pre-crisis levels in spite of the current global developments.

Imports are projected to increase in line with final demand, particularly driven by capital goods required for investments.

In 2023, Croatia's GDP is to expand by 3.0%, lower than the 3.4% forecast made in February, with a positive contribution from domestic demand and a negative contribution from net exports due to the rising import dependency of final demand, the EC said.

“The balance of risks to the forecast is tilted to the downside, with key negative risks stemming from the rising global uncertainties and commodity price shocks, which could affect both domestic and external demand. On the upside, the envisaged euro adoption in 2023 could benefit investments and trade, while RRP-related investments and reforms, if swiftly implemented, could more rapidly increase the growth potential of the economy,” EC explained.

In 2020, the country's economy contracted 8.1%.

EC expects Croatia's inflation to accelerate from 2.7% in 2021 to 6.1% in 2022, mainly driven by rising energy and food prices triggered by shocks on international commodity markets.

Fiscal balances of the Adriatic country are forecast to continue to improve, with an expected decrease of the general government deficit from 2.9% of GDP in 2021 to 2.3% of GDP in 2022, which – together with high nominal GDP growth - should bring down the debt-to-GDP ratio from 79.8% close to 75.3%.

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