Croatia: GDP ticks up in the third quarter
GDP growth accelerated to 2.8% year on year in Q3 from 2.6% in the second quarter. Q3’s reading marked the fastest increase since Q4 2022 and surprised markets on the upside. On a seasonally adjusted quarter-on-quarter basis, economic growth lost momentum in Q3, cooling to 0.3% from the previous quarter’s 1.5% growth. Q3 marked the worst reading since Q4 2022.
Private consumption growth improved to 3.0% year on year in the third quarter (Q2: +2.1% yoy), as nominal wage gains outpaced inflation. Moreover, fixed investment growth hit an over-two-year high of 6.1% in the third quarter (Q2: +4.2% yoy). Public spending growth, meanwhile, was the slowest since Q2 2023, expanding 2.1% (Q2: +6.8% yoy).
Looking at the external sector, exports of goods and services contracted 8.5% in Q3 (Q2: -0.7% yoy), largely due to falling goods exports. This was the worst result since Q3 2020. Meanwhile, imports of goods and services fell at a more pronounced pace of 12.1% in Q3 (Q2: -1.6% yoy), marking the worst reading since Q3 2020. Consequently, the contribution of the external sector to overall GDP remained positive.
In 2024, the economy is set to expand at a similar rate to this year. Lower inflation and a tighter labor market are set to buttress household consumption. Moreover, public spending will remain supportive. In terms of investment, much depends on the absorption of EU funds and the ECB’s pace of monetary easing. Meanwhile, net exports are set to deteriorate.
Analysts at Fitch Solutions commented on risks to the outlook:
“Risks to our forecasts for Croatian growth are balanced. On the downside, a renewed surge in energy prices due to the ongoing Israel-Hamas and Russia-Ukraine conflicts could dampen both domestic and regional demand. Slow absorption of EU funds also presents a potential downside risk. On the upside, service exports related to tourism and broader trade in the forthcoming quarters could contribute more than expected to growth in 2024. This would be buoyed by Croatia’s accession to both the Schengen area and the Eurozone as of January 1, 2023.”