April 10 (SeeNews) - Italy's Unicredit Group said on Wednesday it has affirmed its forecasts for Croatia’s economic growth at 2.5% in 2024 and 3.5% in 2025, announced in January.
"Growth is expected to be mainly driven by private consumption in 2024, which started to accelerate in 2023 due to a boost from the recovery of real income and much better overall economic sentiment than in the eurozone," UniCredit said in its CEE Quarterly report adding that the gap between the two is still widening.
In 2023, Croatia’s economy expanded by a real 2.8%.
Furthermore, the Croatian government's budget plan for 2024 signals an increase of more than 11% in central government expenditure, most of which will go to the increase in salaries of civil and public servants and transfers to other population groups, primarily for pensions, UniCredit added.
The financial services group believes that investment in Croatia is likely to decline due to a strong base effect from 2023, when final efforts were made to spend the EU budget allocations for 2014-20, and the EU Solidarity Fund.
In 2025, UniCredit sees Croatia GDP’s growth picking up, driven by a recovery in investment and external demand based on growth in Central and Eastern Europe and a growth recovery in the eurozone.
"Inflation is decelerating and we see it testing the 3% level by the end of 2024 and moving between 2.5% and 3% throughout 2025," UniCredit said.
UniCredit said that Croatia's fiscal deficit is likely to widen in 2024 ahead of this year’s elections. Croatia will face a super-election year in 2024 with general elections on April 17, European Parliament elections on June 9, and presidential elections at the end of the year. According to recent polls, the current government led by conservative party HDZ enter with an advantage.
The general government deficit is targeted at 1.9% of GDP during 2024, up from 0.5% of GDP in 2023, and to decline slightly in 2025 to 1.6% of GDP, UniCredit said. "However, as the 2025 budget will likely be prepared by a new government (or a continued one after spring elections) and will depend on its strategy, we expect the new government to be less keen to further expand spending," UniCredit said. However, it believes that the deficit levels should still allow for the public debt to GDP ratio to decline, nearing 60% during 2024.
"While elections might lead to some volatility, we continue to see Croatian bonds as cheap compared to southern European peers," UniCredit concluded.