Croatia's real GDP growth in the first quarter of 2023 could reach 2.3% on an annual basis, diminishing the risk of the domestic economy being in recession, the Croatian Central Bank (HNB) said in its latest monthly bulletin, published on Monday.

After substantial growth towards the end of last year, the monthly indicators of economic activity suggest that Croatia’s real GDP continued to rise in early 2023, the central bank said.

Citing preliminary data from the national statistical office, the HNB said that at the end of 2022 real GDP had risen by 4.0% year on year and by 0.9% quarter on quarter.

“The HNB’s nowcasting model of economic activity suggests that the real GDP continued to rise in the first quarter of 2023 and that it could reach 2.3% on an annual level, up 0.8% from the last quarter of 2022. This diminished the risk of the domestic economy being in recession,” the bulletin says.

In January, industrial production rose considerably on a monthly basis, increasing from the average level in the last quarter of 2022.

After falling towards the end of 2022, in January the real retail trade turnover recovered slightly, which can be attributed to a further recovery in consumer optimism and favourable developments in the labour market.

The number of employed persons in January and February continued to rise at a pace similar to that seen in 2022, with the growth being relatively broadly based. After falling for six consecutive quarters, real wages also rose slightly.

Business optimism continues to be above the long-term average, with optimism in industry rising sharply in February.

The annual inflation rate measured by the harmonised consumer price index slowed down for the third consecutive month to 11.7% in February, down from 12.5% in January. This fall notwithstanding, inflation remains high and inflation risks pronounced, the bulletin says, adding that the sharp growth in nominal wages and the labour shortage helped to keep inflation elevated.