17:23 / 19.04.2022.

Author: Branko Lozančić

IMF cuts growth forecast in half for Croatian economy in 2022

Growth forecasts

Growth forecasts

Foto: Illustration / Shutterstock

The Croatian economy will grow by 2.7 percent this year, the International Monetary Fund (IMF) predicted on Tuesday, significantly lowering growth forecasts in Germany and the Eurozone due to the war in Ukraine and high inflation.

In its regular spring forecasts, the IMF has more than halved the growth forecast for the Croatian economy this year, as it estimated growth in 2022 at 5.8 percent in its regular autumn forecasts for October.

In 2023, growth should accelerate sharply, to 4.0 percent, the IMF estimates.

In 2021, the Croatian economy grew by 10.4 percent, which is 4.1 percentage points stronger than the IMF estimated in October last year.

Higher inflation, lower deficit

At the same time, the IMF more than doubled the forecast for this year's inflation in Croatia, from 2.0 to 5.9 percent. In 2023, according to the IMF, price growth should slow down significantly, to 2.7 percent, and almost return to the level of 2021.

However, they halved the estimate of this year's current account deficit of the Croatian balance of payments, expressed as a share of GDP, to 0.4 percent. Next year, the balance sheet should show a surplus of 0.3 percent, they estimate.

In 2021, according to their new estimates, the balance showed a surplus, measured as a share of GDP, of two percent. This significantly improved the estimate from last autumn, which showed a slight deficit in the balance of payments for 2021, expressed as a share of GDP, of 0.1 percent.

They slightly lowered the unemployment forecast this year, from 8.0 to 7.7 percent. In 2023, it should be further reduced, to 7.4 percent.

In 2021, according to their latest estimates, it was 8.2 percent and was 0.2 percentage points lower than they had estimated last fall.

Traces of war

To the group of emerging and developing European economies, which includes Croatia, the IMF forecasts a decline in activity this year, by 2.9 percent, due to the severe consequences of the war in Ukraine.

Last fall, they forecast its activity to grow by 3.6 percent.

In 2023, activity in this group of countries should increase by 1.3 percent.

The Polish and Hungarian economies should grow the most, by 3.7 percent, followed by Serbia, with a projected growth rate of 3.5 percent this year.

Turkey is expected to record the same growth rate as Croatia, with the IMF forecasting the weakest growth for Bulgaria, at a projected growth rate of 2.2 per cent.

The Russian economy is expected to record an 8.5 percent drop in activity this year. Last fall, the IMF had forecast Russia to grow 2.8 percent in 2022.

The forecast for Ukraine reveals the severe consequences of the Russian invasion, with a projected rate of decline in activity of 35 percent.

A blow to Germany

The IMF expects severe consequences of the war in the Eurozone as well, since the sanctions imposed on Russia hit Europe hard, and Germany in particular.

According to the IMF, the Eurozone economy is expected to grow 2.8 percent this year, 1.1 percentage points lower than forecast in the preliminary winter forecasts in January.

In January, the IMF published only forecasts for the world, regions and leading economies.

In 2023, the growth of activities in the area where common currency is applied should slow to 2.3 percent.

The IMF predicts that inflation in the Eurozone this year, under the influence of the war in Ukraine and sanctions against Russia affecting food and energy prices, should jump to 5.3 percent, and weaken to 2.3 percent in 2023.

The IMF's forecast for this year's GDP growth in Germany was lowered the most, by 1.7 percentage points, to only 2.1 percent. In 2023, activity in Europe's largest economy should accelerate again, to 2.7 percent.

By far the strongest growth in activity among Eurozone members should be recorded this year in Spain, by 4.8 percent.

The IMF has also slightly lowered its growth forecasts for the US economy this year and next, by 0.3 percentage points, and now expects activity to grow 3.7 percent this year. It should slow down significantly next year, to 2.3 percent, they estimate.

The Chinese economy is expected to grow 4.4 percent this year, almost half as weak as in 2021. Next year, growth is expected to slow to 5.1 percent, according to the IMF.

Source: HRT

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