Croatia's economy has expanded at rates higher than the average growth rate in the European Union this year, and projections hint at the continuation of this trend in 2024.

According to the last estimates of the national statistical office (DZS), Croatia’s Gross Domestic Product (GDP9 grew 2.8% in the thrid quarter of 2023 comapred to the corresponding period of 2022, after the Q2 growth of 2.6%.

Croatia’s economy has been expanding for 11 quarters in a row.

The economy of the euro area and the EU stagnated in the third quarter of 2023 compared with the same period in 2022, and Croatia recorded the second highest growth rate in the EU after Malta, the EU statistical office, Eurostat, has recently reported.

Croatia’s higher growth rate than the EU average rate shows that the government is pursuing the right (economic) policy in the times of crisis, Prime Minister Andrej Plenković has recently stated.

The strength of the economy’s post-pandemic recovery is evident in the fact that GDP in the third quarter of this year was 13% higher in real terms than in the third quarter of the pre-pandemic year 2019, the government said, adding that GDP growth was mostly impacted by a continued growth of household spending, of 3%, and an increasingly fast growth of fixed capital investment, of 6.1%.

Criticism of poor GDP structure

However, there were some critics who said that the structure of the country’s GDP is poor.

For instance, Croatian Employers Association (HUP) has said that the year-on-year 2.8% GDP growth in Q3 2023 was higher than expected but that the poor structure of GDP heralded challenges the economy would have to deal with in the months to come.

Elaborating its view, HUP said in a statement that it was concerned about a strong decline in commodity exports, as a direct consequence of the slowing down of economic activity in neighbouring countries and the recession in the countries that are Croatia’s most important trade partners.

The drop in exports of services shows that the existing model of tourism is faced with growth limitations, HUP said, noting that the statistics for Q3 suggest that the potential of Croatia’s tourism model has reached its peak.

HUP also called for the adoption of measures that would enable greater competitiveness of domestic products and services so as to maintain the export potential. Croatian exports are burdened by labour taxation as well as the price of electricity for businesses, which is above the EU average, it says.

Opposition parliamentarians, Boris Lalovac of the Social Democratic Party (SDP), a former finance minister and Davorko Vidović of the Social Democrats has commented that the government is taking advantage of the results of the tourism industry while exports are declining and that therefore the Q3 GDP growth of 2.8% does not provide a real picture.

Lalovac told the press in the parliament that the third quarter “has been under the highest influence of tourism” and  that tourist industry has again helped the economy.

He warned that exports fell 8.5% in Q3 2023 compared to Q3 in 2022. “This shows that the markets for our exports are starting to close,” he said. All this will be evident in the fourth quarter, Lalovac added.

The former SDP finance minister recalled that a recent survey by the EU statistical office, Eurostat, has shown that Croatia fared worst in terms of households’ financial deficit.

Household spending on necessities is about €51 billion, while incomes from salaries, pensions and such reaches €41 billion. Thus, households are short of €10 billion in their budgets, he said.

Growth projections for 2024: Croatia’s economy set to rise at about three percent

The government expects the country’s GDP to rise by 2.8% in 2024 mainyl due to a robust domestic demand.

The Plenković cabinet also expects positive trends on the labour market, with the survey unemployment rate  shrinking from 6.1% in 2023 to 5.7%.

Gross monthly wages are to rise 9% in the nominal terms, which is a deceleration compared to 2023 when they grew 14.6%

The country’s inflation rate is set to wane from 8% in 2023 to 3.1% in 2024.

Concerning the fiscal framework, after the general government deficti of 0.3% of GDP in 2023, this deficit is likely to widen to 1.9% of GDP in 2024. This is still within the criteria imposed by the Stability and Growth Pact.

The general government debt to GDP ratio  is going to be reduced from 60.7% this year to 58% next year, according to the government’s projections

HNB: Croatia’s GDP could rise by 2.6% in real terms in 2023, and by 3% in 2024

Croatia’s GDP could rise by 2.6% in real terms in 2023, and by 3% in 2024, while inflation, after the 2023 rate of 8.4%, could slow down to 4% in 2024, Croatian National Bank (HNB) officials said at the bank’s annual press briefing recently.

The central bank thus revised down this year’s GDP forecast, and revised up next year’s growth forecast, lowering the inflation rate forecast for both years.

The HNB last published estimates of GDP trends in mid-September, when it forecast a 2.9% GDP growth in 2023 and a 2.6% growth in 2024.

According to the previous forecast, the growth of inflation measured by the Harmonised Index of Consumer Prices, was estimated at 8.8% in 2023 and at 4.7% in 2024.

A summary of the HNB’s macroeconomic projections shows that while recovery in the euro area has been delayed until the start of 2024, somewhat stronger growth is expected for Croatia. GDP in the euro area is expected to grow by 0.6% in 2023 and by 0.8% in 2024.

The expected growth in Croatia reflects stronger household consumption, which after going up by 2.9% in 2023 should accelerate to 3.9% in 2024, according to the central bank’s forecasts.

Inflation in Croatia in 2023 is lower than expected despite higher energy prices while in 2024 price inflation is expected to drop for all components.

In the euro area inflation in 2023 should be 5.4% and in 2024 2.7%, with the HNB noting that higher inflation differential in the euro area is increasingly due to energy price inflation. However, the cumulative growth of inflation is higher in central and eastern European countries, the HNB says.