The International Monetary Fund on Tuesday halved the forecast of Croatia's GDP growth this year amid a slowdown in activity in the euro zone due to pressure from inflation, tighter monetary policies and turmoil in the financial sector.

Croatia’s GDP is projected to grow 1.7 percent this year, the IMF says in its April 2023 World Economic Outlook, reducing the forecast made in the autumn report by 1.8 percentage points.

The IMF projects Croatia’s GDP growth in 2024 at 2.3 percent.

In 2022, the Croatian GDP grew 6.3 percent, up by 0.4 percentage points from the IMF’s projection from autumn 2022.

Croatia’s first year in the euro area will be marked by a slowdown in activity in developed economies due to pressure from high inflation, tighter monetary policies and turmoil in the financial sector.

Central banks have tightened their monetary policies to curb inflation, but the side effects which appeared in the financial sector last year are worrying, according to IMF economist Pierre-Olivier Gourinchas.

The euro area’s economy is expected to grow 0.8 percent this year, down by 0.2 percentage points than what the IMF forecast in January.

In 2024, activity should accelerate to 1.4 percent, down by 0.2 percentage points than forecast at the start of the year.

Inflation in Croatia should drop to 7.4 percent this year from 10.7 percent in 2022, according to the IMF, which last autumn projected that inflation would be 9.8 percent in 2022 and drop to 5.5 percent this year.

In 2024, inflation is projected at 3.6 percent.

The current account balance to GDP ratio will be -1.8 percent in 2023 and 2024, while last year it was -1.2 percent. In its autumn outlook, the IMF put the ratio at +2.2 percent in 2023 and +2 percent in 2024.

The unemployment rate forecast for this year was reduced from 6.6 percent to 6.4 percent, while for next year it is projected at 6 percent. In the latest forecast, the IMF puts the 2022 unemployment rate at 6.8 percent, 0.1 percentage points less than projected last autumn.