ZAGREB, 26 Sept (Hina) - The European Bank for Reconstruction and Development (EBRD) said on Thursday that it expects Croatia's economy to grow by 3.6% in 2024, exceeding the average for Central Europe and the Baltic countries, while in 2025 economic activity is expected to slow down, contrary to regional trends.
In May the EBRD had forecast that Croatia's economy would expand by 2.9% in in 2024.
In 2025, the country's growth is expected to slow down to 3%, the EBRD said, revising upward its May forecast by 0.2 percentage points, which would mean the restoration of the 2023 level of economic activity.
Croatia's economy is thus expected to grow the most of all Central European and Baltic economies this year, significantly exceeding the forecast regional average of 2.3%.
This year, Poland is expected to draw closest to Croatia, with a growth forecast of 3.2%.
On the other hand, forecasts for 2025 show a discrepancy as the region's growth is expected to pick up to 3.2%, with growth rates in Latvia, Hungary and the Czech Republic expected to almost double in relation to 2024.
Adjustment to new reality
The region will recover strongly in 2024 after stagnation in 2023 owing to continued resilience in labour markets, the EBRD says.
Activity in all countries in transition in which the EBRD operates should grow by 2.8% in 2024, slightly less than forecast in the spring this year.
In 2025, economic activity should pick up to 3.5%, also slightly less than forecast in May.
Central Asia’s growth has been weaker than expected due to stagnation in mining activities in Kazakhstan and Uzbekistan, and south-eastern European Union states have been impacted by spillovers from a weaker outlook in advanced Europe.
Meanwhile, economies in the southern and eastern Mediterranean region are feeling the effects of a severe drought and the ongoing conflict in Gaza and Lebanon, the EBRD says.
“Our economies are steadily adjusting to evolving global dynamics," said Beata Javorcik, the EBRD's Chief Economist.
"Although we have made a slight downward revision to our growth forecast, the easing of inflation and recovery in real wages offer encouraging signs. Ongoing vigilance will be required as economies adapt to challenges related to renewed inflationary pressures, energy security, trade and financing conditions along their adjustment paths," she said.
Natural gas "relatively expensive"
On the upside, the EBRD's new regional outlook highlights falling regional inflation. This had dropped from a peak of 17.5% in October 2022 to 5.8% by July 2024.
However, inflation remains 1.6 percentage points higher than its pre-pandemic average. This pattern is broadly similar to that observed in advanced economies, the EBRD notes.
As inflation has declined, real wages have resumed rapid growth, almost catching up with pre-Covid trend levels. This has boosted household consumption, the EBRD says.
Oil and gas prices have stabilised and are currently around the average levels seen between 2017 and 2021, it says, highlighting the way the EBRD countries are adjusting to "new geopolitical and geoeconomic realities".
The composition of energy imports has notably shifted from Russian pipeline gas to alternatives such as Norwegian gas and liquified natural gas (LNG) from the United States of America and Norway, facilitated by new and expanded terminals in Croatia, Greece, Jordan and Lithuania.
At the same time, gas in Europe remains relatively expensive, trading at almost five times the US price, with significant price differences between countries.
"The analysis reveals notable differences: for example, Armenia is still paying the same low price for natural gas as in 2021 due to its existing contract, while Ukraine, Slovenia, Croatia and North Macedonia are paying significantly more," the EBRD says.
