EBRD Raises Growth Forecast for Croatian Economy

The Croatian economy is expected to grow by 3.6 percent this year, stronger than previously anticipated, and will exceed the average in the Central European and Baltic region, the European Bank for Reconstruction and Development (EBRD) reported on Thursday. In 2025, activity is expected to slow down, diverging from the trend in the Central European and Baltic region.

In May, the EBRD had forecasted that economic activity in Croatia would grow by 2.9 percent in 2024. In 2025, growth is expected to slow to 3.0 percent, having raised the May estimate by 0.2 percentage points, which would mean a return to the level of 2023.

Thus, the Croatian economy is expected to grow the strongest this year among the group of countries in Central Europe and the Baltics, significantly exceeding the regional average, which is projected at a growth rate of 2.3 percent. Poland is expected to come closest to Croatia this year with a projected growth rate of 3.2 percent.

Forecasts for 2025, however, show a divergence as growth in the region is expected to accelerate to 3.2 percent, according to EBRD forecasts, with nearly double the growth rates in Latvia, Hungary, and the Czech Republic compared to this year.

Adjustment to New Reality

The region is expected to recover strongly in 2024, following stagnation in 2023, thanks to ‘continuous resilience in the labor market,’ the EBRD writes.

Activity in all transition countries where the EBRD operates is expected to grow by 2.8 percent this year, slightly weaker than previously forecasted this spring, according to the latest forecasts.

In 2025, it is expected to accelerate to 3.5 percent, also slightly weaker than previously calculated in May. The growth rate in Central Asia has been weaker than expected due to stagnation in mining activities in Kazakhstan and Uzbekistan and the spillover of weaker prospects for developed Europe onto the economies in Southeast Europe.

Countries in the southern and eastern Mediterranean, on the other hand, are feeling the effects of severe drought and conflicts in the Palestinian Gaza Strip and Lebanon, the EBRD notes. Our economies are steadily adjusting to global dynamics, concluded EBRD Chief Economist Beata Javorcik.

– Although we have slightly lowered our growth forecasts, encouraging signs are the easing of inflation and the recovery of real wages – concluded Javorcik.

Countries must remain vigilant in adjusting to challenges in the area of renewed inflationary pressures, energy security, trade, and financing conditions, she added.

Gas Relatively Expensive

A bright spot in the area covered by the EBRD is the easing of inflation, which has dropped from 17.5 percent in October 2022 to 5.8 percent in July this year, they note.

However, its value is still 1.6 percentage points higher than it was before the pandemic, following a similar pattern as in developed economies, the EBRD observes.

Thanks to the easing of inflation, real wages have begun to rise strongly again and have almost caught up with pre-pandemic trends, which has boosted household consumption.

Oil and gas prices have stabilized and are currently around the average from the period of 2017 to 2021, emphasizes the EBRD, highlighting in the report the adaptation of the countries it covers to “new geopolitical and geo-economic realities.”

The composition of energy imports has significantly changed, shifting from importing Russian gas via pipelines to alternative solutions, such as Norwegian gas and liquefied natural gas from the USA and Norway, supported by new and expanded terminals in Croatia, Greece, Jordan, and Lithuania.

Gas in Europe, however, remains relatively expensive, with prices nearly five times higher than in the USA, with significant differences from country to country, the bank emphasizes.

– Armenia, for example, still pays the same low gas price as in 2021, thanks to an existing contract, while Ukraine, Slovenia, Croatia, and North Macedonia pay significantly more – states the report.