Weaker spending due to high inflation will hamper the recovery of transition economies from the coronavirus crisis, the European Bank for Reconstruction and Development (EBRD) warned on Tuesday, revising down its growth projections for Croatia for 2022 and 2023.

The Croatian economy bounced back last year thanks to private consumption, net exports, investment and tourism, EBRD said in a report on Tuesday, noting that the tourism sector recovered strongly, with visitor stays in 2021 at about 90 per cent of pre-pandemic 2019 figures.

“However, in the fourth quarter of 2021 GDP declined by 0.1 per cent quarter-on-quarter, and figures for retail turnover in January and February 2022 showed a weakening economy, as real income growth was marginally negative,” the bank said.

GDP growth is expected to fall to around 3.0 percent in 2022, from 10.4 percent in 2021, on the back of a slowdown in private consumption and goods exports, while investment should remain robust amid the earthquake reconstruction efforts. The growth projection made in March was 3.2 percent.

“In 2023, a slowdown in inflation, Eurozone entry and EU funds could bring growth to 3.5 per cent, with upside potential for even higher growth. Downside risks from a potential shutdown of energy imports from Russia are mitigated by the country’s limited dependence on Russian gas and the presence of an LNG terminal,” the report says.

The growth forecast for the Croatian economy for this and next year is close to the average for the Central Europe and Baltics region, where activity mostly exceeded pre-pandemic levels, but the positive trends were marred by the consequences of the Russian military invasion of Ukraine.

EBRD revised down the GDP growth forecast for the region by 0.2 percentage points to 3.2 per cent. In 2023, activity is expected to pick up to 3.4%. The growth projection made in March was 4.2 per cent.

This year the Polish economy is expected to grow strongest, by 4.0%, followed by Slovenia and Hungary with a projected growth rate of 3.5 per cent.

Disruptions to supply chains and increased energy prices spurred price increases, and inflation is likely to remain elevated at least for the first half of this year and adversely affect disposable household incomes, EBRD warned.