EBRD Nearly Doubles Growth Forecast for Croatian Economy in 2021.

The Croatian economy is expected to grow by six percent this year, the European Bank for Reconstruction and Development (EBRD) forecasted on Tuesday, nearly doubling its estimate in anticipation of the vaccination of citizens against COVID-19 and the recovery of tourism.

In October last year, the EBRD estimated that the Croatian economy would grow by 3.5 percent this year.

In the pandemic year of 2020, Croatian GDP fell by 8.4 percent, slightly less than the bank had estimated last autumn.

New forecasts indicate that by the end of this year, the economy will be down by 2.9 percent compared to the pre-pandemic year of 2019, the bank calculated.

In 2022, growth is expected to slow to 4.5 percent.

Tourism and the European Fund

The COVID-19 pandemic caused significant damage to the Croatian economy in 2020, with tourism being the key channel of disruption, accounting for about one-fifth of GDP under normal circumstances.

In the first quarter, the economy approached pre-pandemic levels thanks to “robust” goods exports, investments in the construction sector, and a partial recovery in personal consumption.

Activities are likely to grow strongly in the remaining quarters of this year, parallel to the vaccination of citizens against COVID-19 and the recovery of tourism, the EBRD forecasts.

If tourism revenues reach 70 percent of the 2019 level, GDP could grow by six percent this year, the EBRD interprets the assumptions on which it bases this year’s forecast.

In 2022, funds from the European recovery fund from the pandemic and reconstruction from earthquakes will stimulate investments, so the economy, with additional support from increased personal consumption and the recovery of tourism, should grow strongly by about 4.5 percent.

The main threat to recovery remains the pandemic, as new variants and insufficient vaccination could trigger new waves of infection, the bank warns.

Vaccination and Delta

The EBRD has significantly raised its growth forecast for this year’s Europe and Baltic region, which includes Croatia, by 1.3 percentage points to 4.8 percent.

A similar growth rate is expected in 2022, highlighting that forecasts reflect strong household consumption and investment, with additional support from funds from the European recovery fund.

In the entire region where the EBRD operates, activities are expected to grow by 4.2 percent this year, raising the forecast from last autumn by 0.6 percentage points.

In 2022, activities are expected to slow slightly to 3.9 percent.

Optimism with Caution

Accelerated vaccination against COVID-19 and improvements in the health situation have allowed for the gradual lifting of physical distancing measures and other restrictions, leading to a resumption of economic activities, the EBRD notes.

Industrial production and retail trade have largely recovered, and average mobility of people in the regions where the EBRD operates has mostly returned to pre-pandemic levels.

The outlook for international tourism remains extremely uncertain due to travel restrictions, and tourism-dependent economies, including Croatia, Georgia, Egypt, and Tunisia, are still suffering severe consequences, the EBRD emphasizes.

– Revised forecasts instill optimism, but the Delta variant of COVID-19 still creates enormous uncertainty – concludes EBRD Chief Economist Beata Javorcik, especially in countries where vaccination is progressing slowly and those dependent on tourism, she adds.

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