On Monday, the estimate of GDP for the first quarter in Croatia will be published. – We expect continued growth in economic activity, albeit at a slower pace – emphasize RBA analysts.
Their expectations are supported by published data from high-frequency indicators. Namely, although industrial production recorded a slight increase on a quarterly basis, real retail trade turnover fell, and construction activity stagnated from January to February compared to the last months of 2022. Therefore, RBA analysts believe that a growth of around 0.5 percent compared to the last quarter of 2022 can be expected.
On an annual basis, compared to the same quarter of 2022, the expected real growth of 1.7 percent should be supported by an increase in investments, personal and government consumption, while the contribution of net foreign demand is expected to be slightly negative. Investments continue to be supported by construction work in high-rise buildings, backed by EU funds. The impact of inflows from EU funds and the subsequent growth of construction work is expected to intensify from the second quarter. Household consumption, although under pressure from relatively high inflation, finds support in a resilient labor market and rising wages. Moreover, consumer optimism remains around the long-term average.
According to revised data from the Croatian Bureau of Statistics, the real annual GDP growth was 3.5 percent in the last quarter of 2022 (original data, -0.5pb compared to the previous estimate). In line with expectations, the annual growth in the fourth quarter of 2022 was widespread with real growth in all components of GDP. RBA analysts are encouraged by the growth of investments in gross fixed capital, which have increased for the fourth consecutive quarter (+9.6 percent annually), which is certainly a result of more successful utilization of EU funds. Household consumption has so far found support in a strong labor market (+1.3 percent annually). Compared to the period from July to September 2022, the economy recorded a growth of 0.6 percent (seasonally adjusted, -0.3pb compared to the first estimate). For the entire year of 2022, GDP is real 6.2 percent higher.
When compared to neighboring countries, according to Eurostat data, Croatia, along with Romania (+4.3 percent annually), was a leader in annual growth (+3.7 percent, seasonally adjusted data) in the fourth quarter. In other neighboring countries, growth was more moderate, with Bulgaria’s GDP increasing by 2.1 percent, Slovenia’s by 1.3 percent, Slovakia’s and Hungary’s by 0.9 percent, Poland’s by 0.6 percent, and the Czech Republic’s by 0.3 percent. On a quarterly basis, among the observed countries, the Czech Republic, Hungary, and Poland recorded negative growth rates in the fourth quarter of 2022.
After the euro area economy recorded a growth of 1.8 percent in the last quarter of 2022 compared to the same period in 2021 and stagnated compared to the previous quarter, a slight growth of 1.3 percent annually and 0.1 percent quarterly was achieved in the first quarter of 2023 according to preliminary data. The data is likely to be revised as the largest economy in the euro area, Germany, according to final data, slipped into recession with a change compared to the last quarter of 2022 of -0.3 percent (0.0 percent first estimate) and an annual change of -0.2 percent (+0.2 percent first estimate, original data).
The lack of stimulus from the construction and industrial sectors, along with a restrictive interest rate environment, will continue to burden economic momentum in the coming months. Additionally, there is a noticeable weakening of personal consumption, which typically makes a significant contribution to economic growth, conclude RBA analysts.
