Croatia had the second highest GDP growth last year after Malta in the entire European Union. This is a figure to be pleased about… But now comes the painful ‘but’, just like in jokes with one good and one bad news. And the bad news in this case is that a considerable part of that growth can be attributed to European funds – which will not always be so generous.
– Without inflows from EU funds, last year’s real GDP growth would have been at least one percentage point lower. This is an estimate of direct effects, without the multiplier effect, which we believe is impossible to calculate accurately. However, we believe that a hypothetical cessation of inflows from EU funds would halt the growth of construction as it would slow down infrastructure projects, energy renovation of buildings, and earthquake recovery – stated the head of bond trading at InterCapital Ivan Dražetić, adding that construction dominated last year in the volume of total investments, as evidenced by the real annual growth rate of the sector of 4.5 percent.
Considering the growth in the volume of construction work during 2023, all analysts agree that the continued growth of gross investments in fixed capital for a year in a row is the result of improved absorption and more successful use of funds from European funds.
– The contribution of investments in fixed capital is 0.8 percentage points, primarily influenced by EU funds, whose contribution to current GDP growth rates in recent years we estimate at one to 1.5 percentage points – said HUP’s chief economist Hrvoje Stojić.
Funds and remittances from abroad
Although the Croatian National Bank (HNB) also states that investment activity was influenced by the growth of public investments largely related to programs financed by money from European funds, they note that there are no precise estimates of the impact of using fund resources on GDP movements, nor assessments of the contribution of personal remittances from abroad, which reached 7.6 percent of GDP in 2022 (inflows of compensation for temporarily employed persons abroad and personal transfers)
– Croatia certainly belongs to the group of countries where both economic phenomena have great relative importance in relation to total economic activity, so the domestic economy would look quite different if they were absent. When it comes to the use of funds from the European budget, which includes European Structural and Investment Funds, as well as funds from the Recovery and Resilience Mechanism and the Common Agricultural Policy, Croatia, together with Bulgaria, has the most important available amount for the seven-year budget period (2021 – 2027) in relation to GDP (from 2022).
The specific impact, whether from the use of funds from the European budget or inflows of personal remittances on economic activity, is difficult to determine due to a number of factors, such as the heterogeneity of projects financed with European money, from social to infrastructural, the degree of import dependence of spending money from European funds, and the way personal remittances from abroad spill over into consumption and investments in the country – stated the HNB.
A detailed analysis of the current situation and forecasts for the future can be read in the new digital and printed edition of Lider.
