Government Projections for 2023 – Growth in State Spending, Decline in Tourism

Every serious entrepreneur or manager, whether they want to admit it or not, is still searching for somewhat relevant inputs on which they could base a business plan for 2023, even though December is just around the corner. Among the questions that swarm and collide are those related to what will happen with existing customers. Should one focus on them? But you can focus on the customer as much as you want and pamper them to the skies if they are not financially capable. Perhaps one should focus on new customers? But acquiring them is expensive.

Moreover, if they are in the same position as those you already have, what have you achieved? Then, at one in the morning when sleep eludes you, the idea of focusing on a completely different group of customers arises. If I have been selling my product to end consumers, should I at least partially shift to customers funded by the budget? Or should I focus more on the B2B team operating in or with the tourism sector? Or should I stick with exporters, even though, as I read, their orders from abroad are decreasing? Or should I finally, like at the beginning of my career, dive back into import and distribution?

The Framework of Truth

Intuition is a trait that a successful entrepreneur in Croatia must certainly possess. However, it is best if that feeling is at least partially connected to data. Therefore, it is advisable to read the Government’s budget proposal for 2023. In this issue of Lider, we have a separate text on what the money collected from taxpayers will be spent on. Additionally, attention should be paid to one accompanying table. Its title is ‘Macroeconomic Framework 2012 – 2025.’

The value of the percentages in that table lies in the fact that they relate to the components of GDP: personal consumption, state consumption, investments, exports, and imports. Adhering to the policy of avoiding making promises that can be numerically controlled, the Government does not set targets. It presents ‘projections.’ Which, as such, are not binding. There was no targeting of growth even in more stable times, so it could not be expected that the Government would promise anything in these volatile conditions.

The known projection is that GDP growth next year could be at a positive zero (+0.7 percent). But what will be a contribution and what will be a detriment is less noticeable. Thus, the highest growth, should it be a surprise, will be in state consumption. Realistically (all percentages are adjusted for expected inflation), that is 2.1 percent. Above average will also be the growth of gross investments in fixed capital (1.7 percent). Personal consumption is projected to grow at a modest rate of 0.4 percent.

As expected, exports will be in the negative. As euphemistic politicians would say, the export of goods and services will have ‘negative growth’ of minus 0.2 percent. However, within that aggregate movement of exports lies a considerable surprise. The public would expect that commodity exports would decline. Especially after news of reduced orders for goods from foreign markets emerges. Given that Europe is rapidly cooling economically, and over 70 percent of Croatian commodity exports are directed there, a decline can be expected.

The State – The Safest Customer

The surprise is that Plenković’s government, which occasionally remembers commodity exporters as reliable generators of GDP growth, predicts that in 2023, commodity exports will still grow. And at a rate of 0.9 percent. An even greater surprise is that the sector favored by all previous governments, service exports (translated: tourism), will, according to projections from the Government, pull GDP down in 2023. A decline in service exports of 1.6 percent is projected for 2023. When it comes to imports, there should not be a deficit.

Commodity imports will grow by 0.4 percent, and service imports by 0.3 percent. Overall, from the ‘Macroeconomic Framework 2021 – 2025,’ it could be concluded that it will again be most opportune to do business with the state. It is not bad, if possible, to ‘chip in’ to the ecosystem of companies that will take on parts of work from financially capable investment projects funded by EU funds. Export jobs, as demanding as they may be, are not without prospects. And the signal that the next tourist season may not be like this one should be taken into account and ‘updated’ when reports from European tourist exchanges begin.

The aforementioned table, as required by Brussels, also contains projections for 2024 and 2025. To ensure this column does not exceed the maximum digestible amount of numbers, let’s just say that the projections suggest a return to old growth rates (2.7 percent and then 2.6 percent), which for Croatia means old unsuccessful attempts to leap over three percent growth. Given the absence of a meaningful development and reform plan, this should not be surprising. But it is a valuable signal to the business community regarding the circumstances in which they will operate in the least unfavorable scenario.