At the end of last year, optimism still prevailed among Croatian entrepreneurs, and the Hendal-Lider Business Optimism Index for the last quarter of 2023 shows that Croatia is still in a boom phase, but this optimism is trending down compared to the first half of last year. The surge in optimism lasted for a year, from the third quarter of 2022 until the third quarter of 2023, when it began to melt, but even in the last quarter of last year, it was still somewhat more pronounced than a year earlier. Of the 400 respondents from seven key economic sectors in Hendal’s survey, only respondents from the manufacturing and IT sectors rated the current business situation in the last quarter as better than in the previous quarter. Other sectors (tourism, trade, construction, transport/services, and energy) showed a decline in satisfaction with the business situation at the end of the year. However, regarding their expectations for the next six months, optimism is present in three sectors (manufacturing, construction, and tourism), while respondents in trade, transport/services, energy, and IT view the near future less optimistically than three months prior. The circumstances that influenced the results of the HLIPO index in the past year were commented on in detail by Ana Kuković, senior project manager at Hendal: – The first half of 2023 was marked by GDP growth, with economic activity increasing by 1.1 percentage points in the second quarter compared to the previous quarter, i.e., by 2.7 percentage points compared to the same period in 2022. The State Bureau of Statistics reports that in the third quarter of 2023, GDP was real and higher by 2.8 percentage points compared to the same quarter in 2022, primarily due to increased household consumption. This is the 11th consecutive quarter in which Croatia recorded annual GDP growth. In terms of growth dynamics, Croatia was at the top of the list of Union members for which data has been published. Tourism always works in Croatia’s favor, and in this combination of success and growth in personal consumption, certainly partially stimulated by state subsidies to the population, as well as increased state consumption and investments. Despite all the good GDP indicators for last year, macroeconomists are somewhat more realistic and note that trade with foreign countries has decreased, which should also be viewed in this context. Forecasters from the banking sector indicate that we can expect slowed tourism growth in 2024 due to reduced demand from the most desirable tourist destinations: Germany, Austria, and Italy. – Comparing Croatian numbers with those from the eurozone, it is evident that the results of the HLIPO index are realistic for Croatian conditions. Namely, according to Eurostat’s estimates, in the second quarter of 2023, GDP grew by 0.2 percentage points in the eurozone and remained stable in the European Union. GDP in the eurozone decreased by 0.1 percentage points in the third quarter of 2023, while in the European Union it increased by 0.1 percentage points compared to the second quarter of 2023. Compared to the same quarter of 2022, seasonally adjusted GDP increased by 0.1 percentage points in both the eurozone and the European Union in the third quarter of 2023. A decrease of 0.1 percentage points (recorded in the eurozone in the third quarter) is the first quarterly decline since the second quarter of 2020. Several countries are in technical recession (Estonia, Austria, Netherlands), and Germany is on the brink of technical recession. We are particularly concerned about the decline in German exports. Therefore, it is not surprising that entrepreneurs in Croatia are optimistic when looking at the overall economic trends at the beginning of the year, but it is also clear why there has been a phase of stagnation in the optimism index. —
— – Looking individually by industries/sectors, we can notice that in all sectors, except for IT and industrial production, there is a visible decline in the optimism index in the last quarter of 2023 compared to the previous period. The results by sector are clear if we catch the context of events. For example, in tourism, after the end of each tourist season, there is an inevitable decline in the index level in the fourth quarter. The transport and services sector is closely linked to this, so we will observe them together. The summer season of 2023 was marked by upheavals – it started thorny but later showed positive trends. Early bookings were quite lacking, especially from Germans (let’s remember that the German market struggled with technical recession and inflation for most of the year). Facilities that first adapted to the lack of bookings quickly adjusted prices and did not feel the lack of booked reservations to such an extent. The summer season was also marked by unprecedented heat (Italy, Greece), so consequently, part of the tourists spilled over to our market. Other tourist numbers presented publicly were optimistic; and according to Kristjan Stančić, director of the Croatian Tourist Board, the 2023 season is the most successful since Croatia’s independence. We are not used to poor ratings from tourism; there is nothing more to add. The current decline in optimism is expected, and we hope it is temporary. – In the construction industry, we have more problems with the workforce, but the sector is also specific regarding real estate price movements with a large number of vacant apartments. Demand for new construction is high, but buyers with better purchasing power from abroad influence the formation of real estate prices. It is logical to think that as long as we have a good tourist season, the real estate market functions. Therefore, although there is a visible decline in the optimism index at the sector level when comparing the last two quarters of the previous year, it is worth noting that the expectations of entrepreneurs in this sector, regarding the next six months, are still optimistic. – At the end of the year, 30 Contracts for Energy Renovation of Public Sector Buildings were awarded, with a total value of 73.8 million euros (of which 36.44 million euros are non-repayable from the Recovery and Resilience Mechanism), for the energy renovation of hospitals, health centers, schools, and other public buildings of general purpose. The contracts were concluded based on the Call of the Ministry of Physical Planning, Construction, and State Property. The implementation of these contracts is good news for the sector in the upcoming period. The energy sector is burdened by conflicts in the environment (Ukraine and the Middle East), and it is known that energy prices depend on this fragile territory, so alternative energy sources are being sought. Additionally, Iran is sending its destroyer to the Red Sea, and it is uncertain how this crisis will unfold and what it will mean for all actors on the world stage. – Eurostat’s report shows that industrial production in Croatia recorded a strong recovery in September 2023, with the highest growth rate among eurozone and European Union members. The DZS states that industrial production in Croatia increased for the third consecutive month on an annual basis in November 2023. In November, production increased in four out of five sectors, with the highest increase in the production of capital goods. Furthermore, in the first 11 months of 2023, industrial production remained the same compared to the same period last year. – Regarding the manufacturing and IT sectors, they are the only ones to achieve a positive index when comparing the last two quarters of the now completed 2023. The IT sector has become one of the most desirable employers in Croatian frameworks in recent years, while this has been the case globally for longer. In 2023, we read about layoffs by global companies (Alphabet – Google, Meta – Facebook, Amazon, Microsoft, Dell, Zoom, …). Such changes/shocks are always read with apprehension as there is a fear that the situation will reflect on the Croatian market. The assumption is that companies in the sector quickly adapt to the new circumstances by reducing new hiring or adjusting budgets. A specificity of this sector is also significant exports, i.e., many IT companies in Croatia are focused on exporting software solutions, IT services, and technology development. How can the IT sector cope with challenges in situations of global crisis? Primarily through diversification, support from the government, and continuous education of employees. We certainly hope that no severe scenario will occur, but it is good to think long-term and have prepared scenarios for various situations.
