The chief economists of the biggest Croatian banks forecast a 2.5% GDP growth this year and 2.7% in 2024 as well as 7% inflation this year and 3.5% in 2024, the Croatian Banking Association (HUB) said in Friday's Outlook 1/2023.

Last December, economists expected GDP to grow only 1.3% this year, the HUB said, adding that in the meantime there was no recession, so they revised their forecasts upward.

This year the growth will mostly be due to investment, which is expected to grow 5.1%, and to exports of goods and services, which are expected to grow 3.2%, followed by state spending (+2.9%), and personal consumption (+1.8%).

The relatively slow recovery of personal consumption does not seem aligned with the expected real salary trends, HUB said, adding that a strong recovery has already happened, given that the average net pay for April 2023 (€1,122), paid out in May, was 12% higher on the year.

“If we adjust the nominal growth for inflation in May (7.9%), we arrive at a rate of recovery of real wages of almost 4% compared with the same month last year,” HUB said.

Economists say that economic growth and a chronic labour shortage, with unemployment forecast at 6.6%, are pushing wages upwards, while inflation is slowing down. Average consumer prices for this year are expected to be 7% higher than the 2022 average.

Further fiscal stabilisation is reflected in the continued decrease of the public debt-to-GDP ratio, HUB said, adding that according to economists, this year’s financial environment is exceptionally stable.

They forecast a ten-year yield on government bonds of 2.9%, and assume that the current cycle of European Central Bank interest rate growth is nearing its end, meaning that inflation will gradually decrease.

In 2024, economists expect personal consumption to grow by 3.2%, gross investment by 3.9% and exports of goods and services by 4.3%.

Since 2024 is election year, they forecast a higher deficit than for this year.

They also expect somewhat lower interest rates at the end of 2024 than at the end of this year.

Asked if they expected a recession in the EU and a possible slowdown in Croatian GDP growth, two economists said there would be no recession, one said recovery would be slow and burdened by the delayed effects of monetary tightening in the euro area, and one said a marked slowing down was possible as well as its delayed spillover to Croatia.