In its latest economic forecast published on Thursday, the European Commission kept earlier forecast for Croatia's GDP growth in 2022 at 3.4 percent but increased the projected inflation rate to 8.2 percent for this year.

In its Summer 2022 Economic Forecast Croatia’s GDP is expected to grow 3.4 percent this year, unchanged from the earlier report released in May. In 2023, the Commission revised down its growth projection from 3.0 percent to 2.9 percent.

The inflation forecast for 2022 has been revised up to 8.2 percent (compared to 6.1 percent projected in May), while in 2023, the inflation rate should decelerate to 3.6 percent.

The Summer 2022 Economic Forecast projects that the EU economy will grow by 2.7 percent in 2022 and 1.5 percent in 2023. Growth in the euro zone is expected at 2.6 percent in 2022, easing down to 1.4 percent in 2023. Annual average inflation is projected at 7.6 percent in the euro zone and 8.3 percent in the EU, before easing further in 2023 to 4.0 percent and 4.6 percent, respectively.

“Risks to the forecast for economic activity and inflation are heavily dependent on the evolution of the war and in particular its implications for gas supply to Europe,” the Commission said, adding that new increases of gas prices could further drive up inflation and stifle growth.

Overall, the EU economy is set to continue expanding, but at a significantly slower pace than was expected in the Spring 2022 Forecast, the Commission said.

“Many of the negative risks surrounding the Spring 2022 Forecast have materialized. Russia’s invasion of Ukraine has put additional upward pressures on energy and food commodity prices. These are feeding global inflationary pressures, eroding the purchasing power of households and triggering a faster monetary policy response than previously assumed. Ongoing deceleration of growth in the US is adding to the negative economic impact of China’s strict zero Covid policy.”

The EU economy remains particularly vulnerable to developments in energy markets due to its high reliance on Russian fossil fuels, and weakening global growth detracts from external demand, the Commission said, adding that the momentum gathered with the rebound of last year and a somewhat stronger than previously estimated first quarter is set to prop up the annual growth rate for 2022.