December the 8th, 2024 – The government believes that the Croatian employment rate will grow by 3% in 2025. Economists believe, at least currently, that that is too optimistic.
As Jadranka Dozan/Poslovni Dnevnik writes, if we measure the Croatian employment rate by the number of insured persons registered with the Croatian Pension Insurance Institute, we can see that it is gradually moving away from the record levels that were reached this year. This is due to Croatia’s typical seasonal structure and the peak of the tourist season in July.
Back at the end of last month, slightly more than 1.7 million people were working and paying contributions in various arrangements according to the Croatian Pension Insurance Institute’s data. That figure is 22,000 fewer than the month before. It’s also almost 50,000 fewer than the previous record employment figure of just under 1.75 million, recorded back in July.
However, despite the normal seasonal decline in the Croatian employment rate, which usually lasts until January, employment has actually continued to grow at a solid pace. The current number of insured persons stands at slightly less than 44,000. That’s 2.6 percent higher than it was one year ago. In three years, that sum has increased by almost 119,000.
The construction industry continues to lead the way when it comes to employment growth. It has been significantly stimulated by reconstruction activities after the March 2020 Zagreb earthquake, as well as investments that are supported by a large amount of EU cash. The aforementioned sector currently employs over 151,000 people. That is 10,430 more than one year ago, with a significant share of those employed being foreign workers.
This sector is followed by two categories of activities that mainly relate to the public sector in terms of employment. That is public administration and defence; compulsory social insurance; and health and social care, in which the number of insured persons increased by around 10,800 (5,239). In addition, the number of insured persons in the field of transport and storage also increased by over 5,000.
However, unlike construction, the public sector and a number of service industries, there are fewer employees in the manufacturing sector than at the end of last November. In the processing industry, there are currently slightly more than 250,000 people, or 2,000 fewer. In agriculture, forestry and fisheries, there are currently around 500 fewer people than there were last year.
Such movements by sector partly reflect some structural features of Croatia’s economic growth, as overall employment reflects above-average GDP growth rates compared to the EU average. The government is counting on a slightly lower GDP growth rate next year than this year (they expect a slowdown from 3.6% to 3.2% in real terms), while in terms of the Croatian employment rate, they predict that the growth rate will remain at the level of 3%.
For a number of years, economists have mostly assessed the government’s macroeconomic projections on which budget plans are based as realistic, even conservative. This time, they’re more inclined to think their projections are optimistic, and that includes forecasts related to the Croatian employment rate and salaries.
As such, the Croatian Employers’ Association (HUP) estimates that next year, GDP growth will hardly reach 3% (their forecast is 2.7%). That’s primarily why they believe that the budget should have been planned more cautiously. HUP Chief Economist Hrvoje Stojić emphasised the planned growth in contribution revenue (by 11%), which is based on (over)ambitious assumptions of an 8% increase in the average gross salary and a 3% increase in the number of employees.
“The forecast of employment growth at the level of GDP growth suggests that the authors of the budget don’t really expect productivity growth,” he warned. He then recalled that back during the period between 2020-2023, it was precisely the acceleration of real productivity growth per working hour (to 2.5% per year, i.e. twice the EU average) that was crucial for Croatia’s progress in more recent years.
Velimir Šonje also expressed suspicion of the government’s employment and wage growth targets. In both cases, he believes that “the rates are excessive,” and he didn’t fail to note that the expected growth in the Croatian employment rate implies a compromise with the fact that there will be no productivity growth in 2025.
Zrinka Živković Matijević, chief economist at Raiffeisen Bank, stated that in the forecasts for next year regarding the Croatian employment rate, she predict half the growth, around 1.5%. She also sees the GDP growth rate being below 3%, given the current environment and uncertainties. In addition to the fact that the employment growth trend has been going on for a long time, economists from some of the largest EU economies are increasingly warning that the labour market, structurally speaking, isn’t as strong as it seems according to the numerical indicators.
The Chief Economist of the Croatian Chamber of Commerce (HGK), Goran Šaravanja, is also cautious in relation to the government’s expectations for employment growth next year. In addition, he believes that another year of employment growth at a rate of 3% doesn’t seem very likely at the moment.
