Fitch has revised Croatia's GDP growth outlook to 6.1% in 2022, from 3.3% previously, reflecting faster-than-expected growth in the first half of this year and a solid tourism summer season, the global ratings agency said in a press release on Friday.
“The ongoing rapid recovery from sharp contraction in 2020 means that the economy is now well above pre-pandemic levels, with Croatia about to join the eurozone in strong economic footing. Nevertheless, economic momentum is expected to lose steam over the coming quarters as inflation affects domestic demand and a slowdown in key trading partners, primarily the eurozone, will affect goods and service export performance,” it explained.
Croatia will join the eurozone as of January 1, 2023.
Fitch forecast economic growth of only 1.1% for the Adriatic country in 2023, even as public investment is set to rise in line with higher absorption of EU funds, before bouncing back to 3% in 2024.
Croatia appears less exposed to macro headwinds stemming from the European energy crisis thanks to recent investment to diversify away from Russian energy sources, it added.
Fitch forecasts harmonised consumer price inflation to average 10.5% in 2022, versus the forecast 'BBB' median of 7.5%, the highest on record. “This highlights a more significant and persistent impact from higher external prices on all inflation categories than we previously expected, even though there are signs that price increases have moderated in recent months. We expect inflation to fall to 5.6% in 2023 and 3% in 2024 driven by base effects and a slowing economy,” Fitch said.
It projects the public debt/GDP ratio to fall to 70.5% in 2022 and further to 66.8% in 2024.
The general government deficit is to narrow to 1.5% of GDP in 2022. However, given the slowing economy next year, Fitch forecast a moderate widening of the deficit to 2.4% of GDP, which is till below the projected BBB median forecast of 4.1%.
