February 15 (SeeNews) - The European Commission said on Thursday it has slightly raised its growth forecast for Croatia's economy for 2024 to 2.6% from 2.5% projected in November.
The growth will be driven by strong domestic demand and significant carry-over effects, the Commission said in its Winter 2024 Economic Forecast.
Household consumption growth in the Adriatic country is set to accelerate as inflation abates and employment and real wages continue to increase. Significant support to wage growth is expected from the government sector, where considerable increases are envisaged from the public sector wage-setting reform, the Commission said.
Investment and public consumption growth are forecast to decelerate, but remain solid, also in light of the continued implementation of the Recovery and Resilience Plan and the expected easing of financing conditions. After reaching comparatively high levels, growth of services exports is forecast to slow down, while exports of goods are projected to grow again with the progressive recovery of external demand. Due to higher imports growth, net exports are however expected to provide a small negative contribution to GDP growth, the EU's executive arm said.
The Commission has kept its projections for Croatia’s GDP growth steady at 2.6% in 2023 and 2.8% in 2025.
Croatia's HICP inflation declined to 8.4% in 2023, from 10.7% in 2022, while inflation excluding energy and food was 8.8%. Both exceeded the corresponding euro area rates of 5.4% and 5%, respectively.
The Commission said Croatia’s HICP inflation is forecast at 2.5% and 2.0% in 2024 and 2025, with the prices of energy and unprocessed food expected to drive the downward trend, while services inflation is projected to remain stickier. Compared to autumn, this is broadly unchanged for 2024 but revised up for 2025. There is a risk of a slower-than-expected decline in inflation due to wage cost pressures, especially if these are not absorbed by firm profits, the Commission added.