The government forecasts a 3 percent GDP growth for this year, revising down their projection by 1.4 percentage points, and they also upped their projected inflation rate to 7.8 percent, state agency Hina said on Wednesday, citing a televised cabinet session.

In the session, Croatia’s convergence program for 2023-25 and reform program for this year were adopted as part of the European Semester, the instrument of fiscal oversight and coordination of member countries’ economic policies with the EU. Both programs are submitted every year to the European Commission by the end of April.

The government’s current GDP growth forecast is 3.0 percent this year, 4.4 percent in 2023, 2.7 percent in 2024 and 2.5 percent in 2025. When this year budget was planned, the government had forecast GDP to increase by 4.4 percent in 2022.

Finance Minister, Zdravko Maric, said that last year GDP grew by 10.2 percent and that this “had repercussions this year due to the quite strong base effect” as well as additional challenges such as the energy crisis and the war in Ukraine. “Therefore the emphasis is on negative forecast risks, mainly due to uncertainties about energy prices, supply chains, the war, and the still present pandemic,” he added.

The main drivers of growth in 2022 and the years after that will be public and private investments, as well as exports of goods and services. Gross investment in fixed capital is projected at 5.8 percent this year and 6.1 percent in 2023, while exports are forecast to jump by 6.9 percent this year and by 6.0 percent in 2023.

The government forecasts that inflation will reach 7.8 percent this year and fall to 3.7 percent in 2023. This year’s markedly higher forecast of consumer price trends has been affected by global price trends, notably for energy and food.

The general government deficit is forecast at 13.36 billion kuna (€1.8 billion) in 2022, or 2.8 percent of GDP, and 8.08 billion kuna (€1.1 billion) in 2023, or 1.6 percent of GDP. Maric told his fellow ministers that the public-debt-to-GDP ratio continues to drop, barring the 2020 year of the pandemic, when it jumped by nearly 17 percentage points to 87.3 percent.

But last year the ratio fell to 79.8 percent. In 2022 it is projected to drop to 76.2 percent, and then to 71.7 percent in 2023, 68.9 percent in 2024 and 66.9 percent in 2025.

(€1 = 7.54 kuna)