HUP expects technical recession in the fourth quarter

The Croatian Employers’ Association (HUP) stated on Friday that the GDP growth in the third quarter was expected, thanks to strong tourism performance, faster growth of goods exports compared to imports, and intensified investments, but they warn that Croatia will likely enter a technical recession in the fourth quarter, so it is not the time for additional taxation.

The State Bureau of Statistics announced on Friday the first estimate indicating that the gross domestic product (GDP) in the third quarter increased by 5.2 percent compared to the same period last year. This is a slower growth than in the previous quarter, when GDP grew by 8.7 percent, but it marks the sixth consecutive quarter of economic recovery from the coronavirus crisis.

Furthermore, according to seasonally adjusted data from the DZS, the economy fell by 0.4 percent on a quarterly basis in the third quarter.

HUP emphasized that they maintain the estimate that GDP will grow at a rate of 6 percent in 2022, which is strong growth, especially compared to the European Union average, which will grow at nearly half that rate of 3.2 percent.

– Here, more or less, the good news for the domestic economy stops – HUP stated.

Namely, as they note, in the last quarter of this year, the domestic economy will likely enter a technical recession, which may last until spring 2023.

– Already in the third quarter, a slowdown in the economy was recorded compared to the previous quarter, and additionally, in the last quarter of the year, the annual growth rate could slow to around 2 percent or lower, due to a significant weakening of foreign demand and the negative effect of inflation and falling real income on personal consumption – employers stated.

In 2023, as they indicated, GDP could record a slight decline in line with the upcoming recession in the eurozone and the negative impact of inflation on purchasing power.

– Due to unfavorable circumstances in the environment, the last thing that economic policymakers should do is impose an additional profit tax – HUP emphasized.

Croatian companies, as they state, are already canceling orders “and now we need strength to survive the recession and maintain jobs.”

– An additional tax will certainly halt investments in development, and that means there will be no new jobs or wage growth – warn the employers’ association.

They emphasize that applying the tax in the proposed form punishes the most successful companies in Croatia, companies that contribute the most to the budget, employ the most people, pay the highest wages, and invest the most. They also note that uncertainty and insecurity in business in Croatia are being created, which could encourage the flight of investments and entrepreneurs from Croatia to countries with a positive attitude towards entrepreneurship and investments.

– Instead of taxation, HUP calls on the government to discuss measures to defend against the upcoming economic slowdown and ensure economic stability. HUP advocates for further tax relief for the economy to improve the competitiveness of private non-financial enterprises, especially exporters in challenging times – concludes the HUP comment.