When Germany sneezes, Europe catches a cold. This well-known saying proves to be true every time, and unfortunately, the Croatian industry has felt it on its own skin recently. The first signs of a cold began in 2023, when total industrial production recorded a decline of 0.1 percent, but it did not recover last year, with the decline increasing to 2.4 percent, alongside a reduction in volume in three out of four quarters. Although this is not a significant decline, the uncertain recovery of demand from key Croatian foreign trade partners leaves little room for optimism in the current year.
The decline in industrial production last year was equally weighted by the manufacturing industry and electricity production. Namely, the dominant manufacturing industry (81.55%) experienced a decline of 1.5 percent last year, while electricity production, with a share of 13.54 percent, fell significantly more, by 8.2 percent.
– If we look at the main industrial groupings, the main culprits for the decline in industrial production (according to contributions to the overall decline) are energy production (-4.4%), followed by intermediate goods production (-1.9%) and capital goods production (-4.5%). The production of durable consumer goods follows with a strong decline of 11.6 percent, but with a smaller share of 2.23 percent in total industry, while the smallest negative contribution came from the production of non-durable consumer goods (-0.2%). And while we are talking about two consecutive years of total production decline, the production of intermediate goods has been in decline for three consecutive years, and durable consumer goods have recorded a strong double-digit decline for the second year in a row. Weak foreign demand explains the described trends, explains Ivana Jović, Chief Economist and Executive Director of Economic Research at Privredna banka Zagreb.
Health of Partners
Since intermediate goods make up the largest part of industrial production in Croatia, and one-third of Croatian industrial products are incorporated into final products in other countries, it is clear why the domestic industry is so dependent on the health of foreign trade partners. Data on exports to the EU confirms this. For example, according to Eurostat data, exports of intermediate goods to the EU fell by 18 percent in 2023, while in the first ten last year it increased by only two percent, and exports to other markets increased by 7.5 percent.
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