The Croatian Employers' Association (HUP) said on Wednesday that the European Commission's Spring Forecast is similar to the government's recent economic forecast but that they both "lack a strong vision of sustainable growth based on investments in sectors that create higher added value."
“The European Commission’s forecast for Croatia released today is similar to the government’s expectations published recently as part of its convergence programme for the period 2022 to 2024. At first glance, both the Commission’s and the government’s views are fairly optimistic with regard to economic trends in the next two years, particularly compared with the forecasts that were released just a few months ago,” HUP’s chief economist Iva Tomic said.
In its Spring 2021 Economic Forecast on Wednesday, the European Commission mildly reduced its growth forecast for the Croatian economy for this year to 5 percent but it markedly increased the forecast for 2022 to 6.1 percent, when Croatia’s GDP should surpass the pre-pandemic level.
The government foresees a growth of 5.2 percent in 2021 and of 6.6 percent in 2022, which means that the pre-pandemic level could be reached already during 2022, Tomic said.
The Commission based its forecast primarily on an increase in the export of services (tourism), personal consumption, and investments, while the government pinned its hopes on funds from the Recovery and Resilience Facility, based on the proposed National Recovery and Resilience Plan.
“However, it is quite clear from both forecasts that the expected investments are largely based on investments by the general government, that is, public sector while at the same time a relatively modest growth is expected in investments by the private sector… That means that the record high growth rates in the coming period, and particularly in 2022, are expected to come from EU money being invested in the public sector,” said Tomic.
The EC’s forecast notes that public investments in the EU in 2022 will reach their highest level in more than ten years thanks to recovery and resilience funds, however, the EC also warns of Croatia’s poor administrative capacity to absorb EU funds, which poses a risk to the growth forecasts. If we add to this our previous experience with public, mostly infrastructure investments, then these optimistic forecasts could remain just forecasts, Tomic added.
She warned that the multiplier effect of public investments in the short term is often less than 1, which means that it is possible that Croatia will not be able to fully achieve an increase in GDP as a purely mechanical effect of an increased inflow of EU funds.
Tomic added that a strong vision of sustainable growth rates is missing in both forecasts and that that growth needs to be based on investments in sectors that create a higher added value, investments in green and digital economies, and in strengthening the export sector and generally a highly productive and competitive economy, capable of competing with rivals in the EU.