IMF Halves Growth Forecast for Croatian Economy in 2022

The Croatian economy is expected to grow by 2.7 percent this year, the International Monetary Fund (IMF) projected on Tuesday, significantly lowering its growth forecasts for Germany and the eurozone due to the war in Ukraine and high inflation.

Thus, in its regular spring forecasts, the IMF more than halved its growth forecast for the Croatian economy this year, having estimated growth in 2022 at 5.8 percent in its regular autumn forecasts in October.

In 2023, growth is expected to accelerate strongly to 4.0 percent, according to the IMF.

In 2021, the Croatian economy grew by 10.4 percent, which is 4.1 percentage points stronger than the IMF had estimated in October last year.

Higher Inflation, Smaller Deficit

At the same time, the IMF more than doubled its forecast for this year’s inflation in Croatia, from 2.0 to 5.9 percent. In 2023, price growth is expected to significantly slow down to 2.7 percent, nearly returning to the level of 2021.

They have halved the estimate for this year’s deficit on the current account of the Croatian balance of payments, expressed as a share of GDP, to 0.4 percent. In the following year, the balance is expected to show a surplus of 0.3 percent, they estimate.

In 2021, the balance, according to their new estimates, showed a surplus, measured as a share of GDP, of two percent. This significantly improved the estimate from last autumn, which showed a slight deficit in the balance of payments, expressed as a share of GDP, of 0.1 percent.

They have slightly lowered the unemployment forecast for this year, from 8.0 to 7.7 percent. In 2023, it is expected to decrease further to 7.4 percent.

In 2021, it amounted to 8.2 percent according to their latest estimates and was lower by 0.2 percentage points than they had estimated last autumn.

Traces of War

For the group of emerging and developing European economies, which includes Croatia, the IMF forecasts a decline in activity this year of 2.9 percent due to the severe consequences of the war in Ukraine.

Last autumn, they had forecasted a growth in activity of 3.6 percent.

In 2023, activity in that group of countries is expected to grow by 1.3 percent.

The Polish and Hungarian economies are expected to grow the strongest, by 3.7 percent, followed closely by Serbia, with a projected growth rate this year of 3.5 percent.

Turkey is expected to record the same growth rate as Croatia, while the weakest growth is predicted for Bulgaria, expressed in a projected growth rate of 2.2 percent.

The Russian economy is expected to record a decline in activity of 8.5 percent this year. Last autumn, the IMF had projected a 2.8 percent growth in activity for Russia in 2022.

The forecast for Ukraine reveals the severe consequences of the Russian invasion, with a projected decline in activity of 35 percent.

Blow to Germany

The IMF expects severe consequences of the war in the eurozone, as the sanctions imposed on Russia severely impact Europe, especially Germany.

The economy of the eurozone is expected to grow by 2.8 percent this year, according to the IMF, which is 1.1 percentage points weaker than they had projected in the preliminary winter forecasts in January.

In January, the IMF only publishes forecasts for the world, regions, and leading economies.

In 2023, growth in the area of the common currency is expected to slow to 2.3 percent.

The IMF predicts that inflation in the eurozone this year, influenced by the war in Ukraine and sanctions on Russia affecting food and energy prices, will jump to 5.3 percent, and weaken to 2.3 percent in 2023.

The IMF’s forecast for this year’s GDP growth in Germany has been most significantly lowered, by 1.7 percentage points, to just 2.1 percent. In 2023, activity in the largest European economy is expected to accelerate again to 2.7 percent.

By far the strongest growth in activity among eurozone members is expected to be recorded by Spain this year, at 4.8 percent.

The IMF has also slightly lowered its growth forecasts for the U.S. economy this year and next year, by 0.3 percentage points each, and now expects activity to grow by 3.7 percent this year. In the following year, it is expected to slow significantly to 2.3 percent, they estimate.

The Chinese economy is expected to grow by 4.4 percent this year, nearly half as weak as in 2021. Next year, growth is expected to slow to 5.1 percent according to the IMF.