Economic analyst Velimir Šonje states that the growth of gross domestic product (GDP) is slightly above expectations, but that the current growth model cannot be sustainable.
He notes that the year-on-year GDP growth of 4.3 percent in the fourth quarter of 2023 is slightly above expectations, but that it is ‘still the kind of growth we have had for some time’, primarily based on personal consumption and wage growth on one side and the calming of inflation on the other, along with the influx of money from European funds and investments.
However, this model cannot be sustainable, Šonje assesses.
– This is a growth model that can last for some time, 2024 will certainly be a good year, however, it cannot guarantee sufficiently fast productivity growth – he said.
As one of the solutions, he offers encouraging private investments that are particularly aimed at increasing productivity and exports, in order to create a lasting foundation for a time when European funds will not be as significant and to create a good base for growth.
HUP: The Trend of Strong Growth Continues
From the Croatian Employers’ Association (HUP), they emphasize that in the last quarter of 2023, Croatia achieved GDP growth above expectations and one of the highest growth rates among EU member states, thus ‘continuing the trend of strong growth of the domestic economy, riding on the wings of strong growth in personal consumption as well as an acceleration in the growth rate of investments’.
The State Bureau of Statistics (DZS) published on Tuesday the first estimate according to which the gross domestic product (GDP) in the fourth quarter of last year grew by 4.3 percent in real terms compared to the same period of the previous year. This is a faster growth than in the third quarter of last year, when GDP grew by 2.8 percent.
The growth in the last quarter of last year is the fastest growth since the third quarter of 2022, when the growth was 5.5 percent, and it is also the 12th consecutive quarter of economic growth.
This growth is, as emphasized by HUP, primarily driven by strong wage and income growth for employees in Croatia, which employers insist on, as well as employment growth. They point out that foreign remittances to the population are also increasing, as well as consumer crediting.
However, they add that unfortunately, the real decline in commodity exports continues, although at milder rates than in previous quarters. They note that this is a consequence of stagnation in economic activities in the EU area and the expected recession in the first half of this year, as well as the loss of competitiveness of Croatian exporters.
In their comments, HUP emphasizes that Croatian exporters, like all Croatian companies, continue to pay a higher price for energy than their competitors in the European Union, where it is common for companies to have a more favorable electricity price than households. They also face an uncompetitive tax wedge on medium and high wages, and “we increasingly share the fate of companies in the euro area regarding the deterioration of financing conditions for enterprises,” they stated in HUP.
Therefore, as they note, there is also a slowdown in productivity growth of companies, which is why the unit labor cost last year grew approximately 2 times more (12 percent) compared to the EU average.
In the second half of the year, a smaller real decline in revenues in the short-term rental sector is recorded, which, as they emphasize in HUP, suggests that the existing tourism model relying on short-term rentals in private accommodation is facing growth limitations.
– The strong GDP growth rate with which Croatia is approaching the average standard of EU countries is certainly excellent news, and to maintain it, the focus must be on improving the quality of the GDP growth structure – they conclude in HUP.
Let us recall, the State Bureau of Statistics (DZS) published on Tuesday the first estimate according to which GDP in the fourth quarter of last year grew by 4.3 percent in real terms compared to the same period in 2022.
This is a faster growth than in the third quarter of last year, when GDP grew by 2.8 percent.
The growth in the last quarter of last year is the fastest growth since the third quarter of 2022, when the growth was 5.5 percent, and it is also the 12th consecutive quarter of economic growth.
According to DZS data, household consumption, which is the largest component of GDP, increased in the fourth quarter of last year by 5.3 percent compared to the same period a year earlier, faster than the 3 percent growth in the previous quarter.
Gross investments in fixed capital increased by 6.0 percent year-on-year, approximately the same as in the previous quarter.
Government consumption also increased by 0.2 percent, after strengthening by 2.1 percent in the previous quarter.
On the other hand, the export of goods and services fell in the fourth quarter of last year by 4.4 percent year-on-year, less than the 8.5 percent decline in the previous quarter.
At the same time, the export of goods fell by 8.7 percent, while the export of services increased by 0.9 percent.
The import of goods and services decreased by 7.1 percent, significantly less than in the previous quarter, when it plummeted by 12.1 percent.
At the same time, the import of goods decreased by 9.0 percent, while the import of services increased by 5.2 percent.
