ZAGREB – Growth in Croatia's gross domestic product this year will be the second highest in the EU and will remain among the highest over the next two years, while inflation should fall from this year's 8.1 percent to 2.4 percent next year and to 1.67 percent in 2025, the European Commission estimates in its autumn economic forecasts.

Although the Commission says that the European economy lost momentum during this year due to high living costs and increased global uncertainty, Croatia is expected to see continued GDP growth this year and over the next two years, a somewhat slower decline in inflation, solid employment growth, record-low unemployment, and continued reduction in indebtedness.

For this year, the Commission states GDP growth of 2.6%, which is significantly higher than the projected 1.6%. For 2024, growth of 2.5% is forecast, which should reach 2.8% in 2025.

Such solid GDP growth in Croatia is the result of the successful year 2022, accession to Schengen and the euro area. Government spending and investment, as well as increased absorption of EU funds along with grants from the Recovery and Resilience Facility, are contributing to “broad-based” GDP growth, the Commission's analysis states. This is also supported, it adds, by an increase in net exports.

The main risk to the economic outlook is more persistent inflation and its slower decline in Croatia than elsewhere in the euro area. The Commission forecasts inflation of 8.1%, which would fall to 2.4% next year, and a further decline to 1.6% in 2025.

This forecast also includes the assumed gradual phasing out of government measures to keep energy prices low by the end of March 2024.

Continued employment growth

The Commission forecasts that employment will continue to grow in both 2024 and 2025 despite labor shortages, so the unemployment rate will be record low.

Training and retraining measures envisaged in the Recovery and Resilience Facility should further make it easier for workers to move into sectors where there is a labor shortage.

Increase in government deficit to 1.8% over two years

The government's deficit and public debt continue to decline, and the Commission notes that the deficit rose to a small surplus of 0.1% of GDP in 2022, while strong economic activity will keep government revenues high in 2023 as well.

The Commission forecasts an increase in the government deficit to 1.8% over the next two years, which is half of the permitted 3%.

As for government indebtedness, it will decline from 68.2% of GDP last year to 58.8% next year and 58.2% in 2025. The reduction in public debt is a consequence of strong GDP growth, the Commission's report states.

Source: seebiz.eu