In its latest economic forecast released on Wednesday, the European Commission lowered Croatia's 2021 GDP growth projection to 5.0 percent (from 5.3 percent in earlier reports), but also increased the country's 2022 GDP growth forecast to 6.1 percent (from 4.6 percent), state agency Hina reported.

According to Commission’s experts, Croatia’s GDP should expand to surpass its pre-pandemic level by 2022, Hina said. In 2020, Croatia’s GDP shrank by 8 percent.

However, the report said that the latest forecasts are “exposed to big positive and negative risks.”

“The negative ones depend on the extent to which the coronavirus pandemic will be contained in Croatia and its tourist-generating markets in time for the summer season, while weak administrative capacities pose a risk for swift absorption of European funds. The positive risks are stronger commodity export growth and swifter recovery of services,” Hina reported, citing the European Commission’s press release.

Recovery is expected to be based primarily on Croatia’s tourism industry, household spending, and investments.

Public finances, which took a severe hit die to the coronavirus crisis, should gradually recover in 2021 and 2022, when the public debt-to-GDP ratio is expected to “moderately decrease,” the Commission said. The general government deficit is expected to drop to 4.6 percent in 2021, from 7.4 percent in 2020, and to drop further to 3.2 percent of GDP in 2022.

“Croatia’s labor market weathered the crisis well considering the economy’s contraction because it was protected with urgent aid measures,” the report said, with the European Commission forecasting “moderately positive development” on the labor market with the rate of unemployment likely to decrease from last year’s 7.5 percent to 7.2 percent in 2021 and 6.6 percent in 2022.

Inflation is expected to reach 1.3 percent in 2021 and again in 2022.