HUP Increases Growth Forecast for 2023 from One to Three Percent

The Croatian Employers’ Association (HUP) forecasts GDP growth of three percent for 2023, and expects an acceleration of growth in the second quarter of this year in the range of 3.5 to four percent.

In its previous estimate, HUP predicted that the Croatian economy would grow at an average rate of one percent this year.

In the latest HUP forecasts in the publication Quarterly Outlook, for 2024, HUP predicts growth at an annual rate of two percent.

HUP’s forecast is thus more optimistic than the revised government projections from the end of April, which indicated that the economy would grow by 2.2 percent this year and by 2.6 percent in 2024.

The estimate of average inflation has been increased to seven percent, which is half a percentage point higher than in the previous estimate. For the next year, employers expect a decrease in inflation to 3.5 percent. The government expects inflation to slow down this year to 6.6 percent, and in the coming years, significant deceleration is expected – 2.8 percent in 2024, 2.4 percent in 2025, and 2.2 percent in 2026.

According to the new HUP estimate, wages should increase by 10.4 percent this year compared to last year, and for 2024, a growth of 7.2 percent is predicted.

The unemployment rate for this year is estimated by employers at 6.6 percent, and for next year at six percent.

HUP states that good trends can be attributed to the strengthening of tourism prospects and a robust labor market benefiting personal consumption, the growth of public investments from EU funds, and a strong improvement in the energy balance.

In the remainder of the year, they expect further growth in real incomes of the population, between three and three and a half percent, an increase in employment of 2.7 percent, and an acceleration of investment growth (+7.5 percent) on the wings of EU funds.

They believe that for sustainable GDP growth at a level of three percent in the medium term, successful absorption of EU funds, active labor market policies, further reduction of tax and non-tax burdens, and bureaucracy, along with reforms in the judiciary, state administration, corporate governance, and education, are necessary.

There is also the acceleration of the green transition and investments in intangible assets.

In the area of public finances, HUP expects a decrease in the share of public debt in GDP to 63.3 percent this year and 60.3 percent next year, with a budget deficit of only one percent of GDP, and in 2024, 1.5 percent.

Next Year Possible A Credit Rating

Given the good performance of public finances, HUP expects that Croatia could earn a credit rating at the level of “A” in 2024, which would affect the reduction of spreads on Croatian bonds by about 50 basis points and positively impact the borrowing of the state and domestic companies.

With such trends and nominal wage growth accelerating above 10 percent, along with increased employment driven by immigration, employers expect the continuation of surplus growth in local government and the opening of space for stronger wage relief through lower tax rates and a more adequate tax treatment of tourist rentals.

HUP believes it is equally important to seize the opportunity to relieve the income of highly qualified workers and promote their employment as a key element in efforts to raise productivity levels.

Namely, as they state, according to labor productivity per hour worked, Croatia is at only 68.4 percent of the EU average.

– It is time for reforms as they are crucial for maintaining GDP growth at around three percent. A smaller and more efficient state and local administration, along with more effective public services, would support economic development, which in a growth period can create new and well-paid jobs, and with reforms, there is room for stronger wage increases, thus raising standards and better filling the budget – say employers.