Expectations for Croatia's economy in December reflected the wave of pessimism in the services sector in the EU and euro area due to the latest increase in COVID infections, the European Commission said in a report on Friday.

Croatia’s Economic Sentiment Indicator (ESI) was down 1.6 points to 109.7 points in December, compared to November.

The greatest deterioration in sentiment was expressed in the services and construction sectors with indicators falling by 3.7 and 3.4 points respectively compared to the preceding month.

The services sector was the hardest hit with mobility restrictions once again being ramped up due to the emergence of a new Omicron variant of the coronavirus, with numerous countries around the world refusing entry to unvaccinated passengers.

The wave of pessimism caught Croatian managers in industry in December which led to industry confidence decreasing by 2.6 points.

The greatest optimism at the end of the year on the other hand was shown by consumers with the consumer confidence indicator increasing by 4.8 points which were also reflected in retail trade confidence with an increase of 3.4 points.

Managers however expect the rate of employment to ease up a little in the coming months despite estimates of reduced uncertainty. The Employment Expectation Indicator fell by 2.2 points while the Economic Uncertainty Indicator (EUI) fell by 3.3 points.

Anxiety in EU and euro area

The emergence of the Omicron variant has muffled expectations in the services sector in the EU and euro area with indicators falling by 6.4 and 7.1 points respectively.

The wave of pessimism in the dominant European economic sector has resulted in the Economic Sentiment Indicator falling by 2.1 points in the EU and 2.3 points in the euro area.

More significantly, at the end of the year during the festive shopping period, the ESI in the retail sector registered a fall of 2.6 points in both the EU and euro area.

Inflation is at a level of almost five per cent according to Eurostat, which additionally discouraged consumers with Consumer Confidence falling by 1.4 points in the EU and 1.5 points in the euro area.

Managers in the construction sector were more optimistic with Construction Confidence increasing by about one percentage point and Industry Confidence also showed some improvement.

“Industry confidence improved slightly (+0.6) to its highest reading on record, resulting from unprecedented appraisals of the current level of overall order books and a renewed uptick in the scarcity assessment of the stocks of finished products.”

The Employment Expectations Indicator (EEI) decreased (-1.4 points to 114.2 in the EU and -1.6 points to 114.0 in the euro area).

Employment expectations fell for the first time since the beginning of the year, going down  by 1.4 points in the EU and 1.6 points in the euro area on the back of increasing economic uncertainty in both areas.