If the Money Sent by Gastarbeiters Dries Up, There Will Be No Crisis in Croatia

Croatia has been the most dependent member of the European Union for years in terms of money sent by ‘gastarbeiters’, as evidenced by the latest statistics. This money primarily goes to local consumption, thereby strengthening domestic purchasing power. Despite this, a potential outbreak of recession in the largest European economies and a consequent reduction in the amount of remittances would not cause a significant decline in personal consumption in Croatia, the most significant component of domestic GDP, and thus no problems in the economy, economic analysts assess.

Recently published data from the Croatian National Bank (HNB) shows that in the first nine months of 2024, 4.64 billion euros in remittances flowed into Croatia, which the central bank defines as receipts received by residents of one country from non-resident individuals. Given that the total amount exceeded five billion euros in 2022 and 2023, it is realistic to expect that this figure will be reflected in the statistics for the entire year of 2024.

Convincingly Leading

In that case, the share of remittances in GDP will remain above seven percent. Eurostat data for 2023 shows that the share of remittances in Croatia was 7.3 percent, which is convincingly the highest among EU member states. The closest follower, Latvia, has a share of remittances of 2.9 percent in GDP. Meanwhile, Ireland has the smallest share, at 0.1 percent of GDP. The majority of remittances comes, of course, from Germany. From the largest European economy, 1.8 billion euros arrived in the first nine months, so last year will likely be slightly better than 2023 when 2.1 billion euros flowed into Croatia.

In 2023, remittances from Germany increased by more than seven percent, while the amount of money sent from Ireland is growing at double-digit rates. In 2020, 270.5 million euros arrived from that island nation, and this amount increased to 607.4 million euros in 2023. In the first three quarters of last year, our workers from Ireland sent 504.2 million euros. Remittances from Austria and Slovenia grew at a slightly slower pace. In both countries, around 180 million euros arrived in 2020, while the year before last, 436.2 million euros came from Austria and 285 million euros from Slovenia.

Analysts from Raiffeisen Bank commented that Croatia is traditionally a country with a relatively high share of remittances sent by residents to Croatia. – This is a consequence of our residents going for ‘temporary work abroad’ for decades and the negative migration trends of our citizens, which have been particularly pronounced in the last ten to fifteen years, since the time of the major crisis in Croatia and the opening of the EU labor market – explain RBA economists.

Slower Growth

Therefore, they expect the trend of increasing remittances to continue, but at a slower pace, as the negative migration trends of Croatian citizens should slow down. – Additionally, recent migrations are largely characterized by the departure of entire families and younger individuals, so the need to send remittances is lower. At the same time, the age structure of recipients of foreign pensions is getting older – assess RBA.

Another question is how the economic situation in the countries where most of our workers are will affect the dynamics of sending remittances. For example, in Germany, the economy weakened by 0.2 percent in the fourth quarter on a quarterly and annual basis, according to data from the statistical office Destatis published at the end of January. At the same time, employment decreased by 0.1 percent on an annual basis. Even if the crisis in the European economy becomes more pronounced, remittances will not be a trigger that ignites a recession in Croatia, as inferred from economists’ thoughts.

– We do not believe that a crisis in European countries could trigger a recession since the social system of a country like Germany, where the most Croatian emigrants still reside, provides adequate assistance to unemployed individuals during unemployment, especially in the short term while pensions are guaranteed. Likewise, although remittances are significant from a macroeconomic perspective and increase the purchasing power of their recipients, we do not believe there will be a sudden drop that could trigger a recession – they believe at RBA.

Stable Trend

Economists at Erste Bank share the same view. – Croatia traditionally records relatively high inflows of financial resources through remittances from abroad, which are also determined by long-term migration movements. In the context of the long-term trend, remittances have shown a relatively stable trend even in less favorable macroeconomic circumstances. Accordingly, although remittances represent a significant foreign inflow, we do not see it as a channel that would lead to recessionary movements in isolation – they assert at that bank.