Car sales increased by 39 percent, unemployment fell below the magical number of one hundred thousand, the average salary rose by 84 euros in three months, and a jump in the attractiveness ranking for investments in the CEE region are just part of the positive news that has emerged recently.
This year’s optimistic indicators have also resulted in revised forecasts from many global institutions, including the European Commission and the World Bank, which predict higher growth for the Croatian economy than initially forecasted. The World Bank has revised its growth estimate for this year from 0.8 to 1.3 percent, the European Commission from 1.2 to 1.6 percent, and Fitch Ratings from 1.1 to 1.4 percent. The Croatian government is even more optimistic, with a forecast of 2.2 percent growth in the coming year. Judging by these promising projections, we need not fear the ominous recession, at least for now.
– The reasons for the relatively more optimistic current forecasts compared to expectations at the end of last year should be sought in the continuous decline in energy prices, the normalization of supply chain conditions, the recovery of business sentiment, and the positive trend in the labor market. These factors apply to Croatia as well as to the rest of the eurozone. Furthermore, although we still witness relatively high inflation numbers, most countries have entered a phase of easing inflationary pressures, which, along with the continuous growth of nominal wages, brings about a recovery in real disposable income – explained macroeconomic analyst from Erste Bank, Mate Jelić.
Billions from the EU
Fortunately, doomsday predictions about oil prices rising to two hundred dollars have not materialized, and the sharp rise in gas prices has also been contained, which, along with actions from central banks, has reduced inflationary pressures.
– A barrel of Russian oil is currently at 55 dollars, while North Sea Brent is at 80 dollars. Thanks to the radical decline in gas consumption in Germany and the accelerated conversion to other energy sources, as well as the increase in demand for renewable energy sources, gas prices have also stabilized. The crisis surge caused by the sudden opening in all sectors and the rise in oil and agricultural product prices has not produced the catastrophic effects that some forecasters had predicted. Of course, it should not be forgotten that the European Union, in order to stimulate recovery from the crisis, borrowed 750 billion euros, which has, of course, stimulated demand for labor and materials – explained economic analyst Damir Novotny on why recession forecasts have not materialized.
With solid investment growth thanks to projects financed by new generation EU funds and a decline in wholesale energy prices, the more positive economic outlook in the EU is also supported by the economic opening of China and significant easing of tensions in supply chains. This more favorable macroeconomic environment creates conditions for better performance of the Croatian economy, which is further boosted by the billions flowing in from the European Union.
– It is well known that Croatia is one of the largest beneficiaries in the distribution of funds under the new EU budget, which should contribute to a strong and sustainable increase in investments in the medium term. The mentioned decline in energy prices, on one hand, and expectations of new record tourist numbers, on the other hand, suggest a more favorable external side of the story – says Jelić.
Twenty billion euros from the EU plus funds for earthquake recovery (if utilized) in the next five years could significantly boost Croatian GDP.
Never a Better Position
– In the next five years, investments will be key. Joining the eurozone and Schengen, along with activating funds from EU funds, will certainly encourage more foreign direct investments. Croatia can benefit from its position, i.e., proximity to developed markets such as the Czech Republic and Germany. Developed countries nearby stimulate our exports, and I must admit that small and medium-sized enterprises are excellently integrating into these supply chains. EU funds, investments, domestic demand, which will be sustained due to wage growth in the public sector and the labor market situation, and, of course, tourist spending are factors that will positively impact economic growth. Over the past two decades, our average growth has been 1.3 percent, the lowest in the eastern part of the EU, so I hope that Croatia will grow faster in the next period than in the past. However, to achieve this, we must accelerate processes in all sectors – said Novotny.
The introduction of the euro in January and entry into the Schengen area could provide a stronger boost to tourism, trade, and investments as they have largely eliminated exchange rate risks, improved the country’s ratings, and facilitated access to capital markets. For all these reasons, although growth this year will be lower than last year, the forecasts are quite optimistic.
You can read the full text and forecasts from other economic experts in the new printed and digital edition of Lider.
