Wages Will Grow Faster Than Inflation, Leading to Real Income Growth

Thanks to the continuous improvement of the trade balance, a strong recovery in personal consumption, and a certain stabilization of industrial production, in the second quarter of this year the Croatian Employers’ Association expects GDP growth to accelerate in the range of 3.5-4 percent annually.

The increase in finished goods inventories among manufacturers, along with a decline in labor productivity in the industry (-1.1 percent annually), still indicates caution regarding foreign demand, alongside a certain stabilization in supply chains. The strong real growth in personal consumption reflects the resilience of the labor market with a noticeable acceleration in wage growth, solid employment growth, as well as a strengthening of tourist demand, adds HUP.

GDP is growing by 3 percent, and wages by over 10 percent

Due to the strong growth in tourism revenues and a record influx of EU funds, employers expect a return to a surplus on the current account of the balance of payments of about 1.5 percent of GDP this year, along with continued deleveraging towards abroad.

Thanks to the strengthening of tourism prospects and a more robust labor market benefiting personal consumption, the growth of public investments from EU funds, and a strong improvement in the energy balance, HUP has raised its GDP growth forecast for 2023 to 3.0 percent (previously 1.0 percent).

They have also raised the forecast for gross wage growth to 10.5 percent (3-3.5 percent in real terms) and employment to 2.7 percent (previously 2.0 percent) due to stronger immigration and stronger economic activity.

Of course, we must not overlook the negative risks that may arise from the renewed activation of the energy crisis, geopolitical instability, the expected recession in the euro area for the remainder of the year, high inflation, excessive tightening by central banks, volatility in financial markets, and worsening financing conditions, warns HUP.