April 14, 2023 – The Croatian Association of Employers presented its new forecasts for the Croatian economy, which came as a somewhat pleasant surprise following a good period.
As Poslovni writes, back in the winter, employers’ associations (HUP) in Croatia expected that this year would be stagnant for the Croatian economy and that after two years of strong post-pandemic growth (cumulative about 20 percent), the GDP growth rate could be slightly negative.
However, the situation in the environment, primarily in the eurozone, has so far turned out to be more favorable than expected: a mild winter and high levels of gas storage eliminated the need for stronger rationalization of the consumption of key energy sources, the improvement of the situation with supply chains favors the recovery of the industry in the first half of the year, and fiscal expansion aimed at mitigating the consequences of the energy crisis greatly helps preserve the purchasing power of the population.
So now, in the HUP report for this year, in the basic scenario (with a 40 percent probability), they expect a growth of the Croatian economy of 1 percent, inflation calming down to 3 percent at the end of the year, and a solid 2 percent employment growth.
A few ‘ifs’
Although they underline that pronounced uncertainties still mark the global environment, they are more optimistic about the potential for growth in the somewhat longer term. They calculate that it could rise to an average of 3 percent per year in the next ten years. Hrvoje Stojić, the chief economist of HUP, nevertheless mentions several important “ifs”.
This forecast, he says, presupposes tax relief and the implementation of reforms in health, education, justice, and the public sector. They are essential for productivity growth and competitiveness and ultimately for the continuation of the downward trajectory of the level of public debt.
“I believe that Croatia will achieve an A credit rating in the next few years, if necessary reforms are implemented that lead to faster and simpler business, lower tax burden, less administration, and if the absorption of EU funds continues. We have all the preconditions, including stable public finances, and a decrease in public debt. and a significantly increased GDP growth potential,” he said.
All this is important in the context of approaching membership in the Organization for Economic Cooperation and Development (OECD). Along with HUP Horizonti as the new format of macroeconomic forecasts of the Association of Employers for the next two years, the expectations of trends for the economies of the 20 most developed countries were presented by the Director of Economic Affairs of the OECD, Isabell Koske, who also referred to the examples of several members of the organization from the Middle and Eastern Europe, which stood out for its progress.
In this sense, she emphasized the successes of the Czech Republic and Poland, which through raising competitiveness, using EU funds, and above all by implementing reforms of the education system, made significant progress and positioned themselves as leaders in the region. So, for example, in the case of Poland, she cited a high-quality and highly educated workforce as the key to success. In 20 years, Poland has raised the share of highly educated people from 9 to more than 30 percent, he says.
Constant improvement
Among the key reforms for the advancement of Croatia, he emphasizes education, because “the labor market must have adequate and qualified personnel in order to be able to develop ideas and compete on the global market.” In addition, he adds, it is equally important to enable those who have completed their education to have more accessible re-education and continuous improvement with new skills that the modern world is looking for. “Employment rates in Croatia are still lower than those in OECD countries,” she reminded.
Despite the relatively optimistic forecasts of HUP, this year’s expectations still reflect a strong cooling of personal consumption and a slowdown in growth, and inflation on average (in the base scenario) should remain elevated, around 6.5 percent.
Nevertheless, along with its slowdown, a gradual recovery of the real income of the population is expected in the rest of this year. The acceleration of investments on the wings of EU funds will contribute to GDP growth; according to HUP’s forecasts, investments could grow by 7.5 percent this year. Finally, although a strong slowdown in the growth of merchandise exports is expected this year, HUP expects that the “niche” structure will mitigate the effects of an unfavorable environment.
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