The Croatian economy will this year contract by 8.5% due to the coronavirus crisis, according to the latest report by the European Bank for Reconstruction and Development (EBRD), which forecast the economy would return to its pre-pandemic levels at the end of 2022.
This is a more marked drop than the 8% drop forecast by the government for this year.
The EBRD's latest estimate forecasts a stronger decline in the Croatian GDP this year than the one published in May, when the ERBD forecast that activities would fall by 7%.
In 2021, Croatian economy should grow by 3.5%, much less than the EBRD forecast in May, when a 6% growth was expected.
These projections assume a gradual normalisation of economic activity in Croatia and its main economic partners, the EBRD said in the report.
"Nevertheless, the risks are strongly to the downside, on account of a possible stronger resurgence of Covid-19 infections," it said.
According to the EBRD, the Croatian economy could reach its 2019 levels in Q4 2022, which makes it one of the last economies of the Central Europe and the Baltic States region to do so.
Mild recovery in wider region
In the Central Europe and Baltic States (CEB) region, to which Croatia belongs, economy should this year drop by 4.4%, somewhat more than projected in May.
In 2021, output should increase by 3.5%, as in Croatia, which is a significantly weaker growth than the 4.6% projected in May.
Forecasts are marked by a high level of uncertainty and to a certain extent depend on the accuracy of the first estimates for the first half of this year, the bank said.
The pandemic could cause lasting damage in some sectors, such as tourism, the bank warns.
According to the report, "(c)ontractions are forecast to be largest in economies highly dependent on external sources of income. These include economies that lost a major part of their tourist season (Albania, Croatia, Cyprus, Greece, and Montenegro) (...)".
"Sectors such as online retail may benefit from increased digitalization as a result of the Covid-19 crisis," the bank added.
Output in the EBRD regions should contract by 3.9% this year and reach pre-pandemic level at the end of next year, rising back by 3.6% in 2021.
In May, the bank projected a 3.5% decline in 2020 and a stronger recovery, of 4.8%, in 2021.