In the global geopolitical chaos, economic problems such as inflation or growth structure across the EU are often swept under the rug. The same is true in Croatia, where we stress-free concluded elections and continued to rub our hands due to still the highest growth rates, along with yet another expected record season. Indeed, everything is rising—salaries, prices, consumption, optimism—although it is evident that some other issues are rolling under the rug. What is happening, we asked Neven Vidaković, a financial analyst who likes to call things by their proper names.
What will be the ‘drivers’ of growth in the new government’s term? EU money will certainly flow until the end of the decade, and consumption shows no signs of slowing down.
Currently, we are reaping all the benefits of structural inflation at the EU level. The inflow of EU funds will continue for a few more years, but not until the end of the decade. With the decline in standards in the EU, tourism will also decline, and EU funds will suddenly dry up, leading to a drop in GDP. We are currently financing projects with EU funds that cannot bring long-term growth and cannot create economic resilience. Once there are no funds for recovery, there will be no sources of growth, and our production capacities are declining.
Nevertheless, more or less all analysts are satisfied with the growth, which is among the highest in the EU, and we are better than most developed members.
There is no doubt that we have economic growth; the only question is whether we want to have the sources of economic growth that we currently have. Since the beginning of Andrej Plenković‘s rule, GDP has grown by 29.92 percent in constant prices. Of that, tourism and trade account for 40.37 percent, public administration and healthcare 27.49 percent, agriculture 18.29 percent, and manufacturing 16.54 percent. These data are from the end of 2015 to the end of 2023, so the impact of the pandemic is excluded, but the impact of EU funds is included. Public administration has grown almost twice as much as the manufacturing industry. A significant restructuring of the economy has occurred, and of course, it is now less resilient. I repeat, there is no doubt that we have economic growth, but whether we want to have such a structure of the economy is a question for serious economists. We have just become a country that has more employees in trade than in manufacturing.
Part of the numbers is rising due to inflation, which, like GDP, is among the highest in the EU. Will it really melt to 2 percent by 2026, as estimated by the Croatian National Bank? Is the root of inflation the same in Croatia and the EU?
The root of inflation in the EU is the restructuring of the economy due to deglobalization. That is why I speak of structural inflation, not inflation caused by monetary or fiscal policy. Our economy is small and has weak resilience to shocks. Therefore, our inflation rate will always be higher than the inflation rate in the EU; similarly, deflation has lasted longer here. Precisely because of these processes, the reduction in inflation is taking so long. For example, inflation in the US has been practically stable for a year. An example of this process is Spain, where inflation was 1.6 percent in May 2023 and 3.4 percent in June 2024. How could inflation rise if the ECB has been conducting a restrictive monetary policy for a year? Such numbers clearly show that some other process is at work.
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