the real purchasing power of households, especially the poor and vulnerable. Fur- CROATIA Key conditions and thermore, although the country’s direct trade and financial linkages with Russia challenges are limited, there could be significant indi- rect trade and investment effects via other Table 1 2021 Croatia’s economic recovery in 2021 was EU countries. In addition, while the num- Population, million 3.9 unexpectedly strong and output reached ber of new COVID-19 cases has recently GDP, current US$ billion 64.6 its pre-crisis levels by mid-2021, largely started to decline, relatively low vaccina- GDP per capita, current US$ 16619.4 due to the reopening of the economy and tion rate and the potential emergence of a 0.3 International poverty rate ($1.9) fiscal and monetary support schemes. Fur- new virus variants might impede recovery. a 0.6 thermore, the relatively favorable epidemi- Over the medium term, EU structural and Lower middle-income poverty rate ($3.2) a 1.8 ological situation during summer months investment funds as well as the new EU Upper middle-income poverty rate ($5.5) Gini index a 29.0 and the country’s proximity to its main initiatives represent an opportunity for School enrollment, primary (% gross) b 93.2 tourism originating markets resulted in a Croatia to accelerate the income conver- b 78.4 significant increase in tourist arrivals. Al- gence with the rest of the EU. Life expectancy at birth, years so, Croatia was relatively less affected by Total GHG Emissions (mtCO2e) 16.4 global supply chain bottlenecks given its Source: WDI, Macro Poverty Outlook, and official data. export structure. Together with the strong a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). global recovery, this led to a marked rise Recent developments in exports of goods. However, underlying long-term growth remains relatively low. Following a contraction of 8.1 percent in After a pronounced economic contraction Results from the recent census suggest a 2020, real GDP in Croatia increased by 10.4 decline in the total population. This means percent in 2021. Private consumption and in 2020, the Croatian economy strongly stronger potential long-term growth will investment activity provided strong sup- rebounded in 2021, posting a double-digit hinge upon increase in productivity re- port to overall growth, underpinned by an growth rate. In addition to domestic de- quiring improvements in business envi- increase in consumer and business confi- mand, economic activity was under- ronment, public administration, education dence, favorable financing conditions and system and judiciary. inflow of EU funds. However, domestic pinned by a sharp revival of tourism and While growth is set to remain relatively demand lost some steam in the last quar- sizable exports of goods. Poverty is esti- strong over the medium term, uncertain- ter, which can be partly linked to the wors- mated to have declined to 1.6 percent in ties related to inflation developments and ening of the epidemiological situation and 2021. Over the medium term, growth is the Russian invasion of Ukraine represent buildup of inflation pressures. Contribu- expected to moderate but remain relative- a significant risk for economic activity and tion of net exports in 2021 was positive due public finances in the near- term. In early to a sharp, albeit still partial, recovery of ly strong. However, downside risks to 2022, the government adopted a mitigation tourism and increase in exports of goods growth remain significant. package worth around 1 percent of GDP by one fifth compared to 2020. On the sup- for easing rising prices but the war in ply side, growth was also broad based Ukraine might put additional pressure on with the services sector contributing the inflation with associated risks of depleting most to the rise in real gross value added. FIGURE 1 Croatia / Real GDP growth and contributions to FIGURE 2 Croatia / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 16 8 140000 14 12 7 120000 10 8 6 100000 6 4 5 80000 2 0 4 -2 60000 3 -4 -6 40000 2 -8 -10 1 20000 2015 2016 2017 2018 2019 2020e 2021e 2022f 2023f 2024f 0 0 Final consumption Gross fixed capital formation 2009 2011 2013 2015 2017 2019 2021 2023 Change in inventories Net exports International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real GDP pc Sources: CROSTAT, World Bank. Source: World Bank. Notes: see Table 2. MPO 15 Apr 22 Favorable economic trends were followed consumption will be partly offset by high- by an increase in employment and er inflation. Overall, inflation in 2023 and wages, and in some sectors, notably con- Outlook 2024 is projected to slow down due to the struction, worker shortages became more easing of global supply bottlenecks and pronounced and were mitigated by for- Growth is set to moderate over the medi- tightened financial conditions. However, eign labor. Inflation gradually intensified um-term but will remain above the pre- commodity price levels will remain elevat- towards the end of the year, fueled by pandemic trend. While global uncertainty ed. General government deficit is likely to food and energy prices, and it continued related to the war in Ukraine is high, the fall below 3 percent of GDP as of 2023. Al- to increase in 2022, reaching 6.3 percent Croatian economy could grow on average, so, public debt to GDP ratio is expected to in February. The general government by 3.5 percent, a year, over 2022-2024. continue declining, reaching 73.9 percent deficit is estimated to have more than However, there are significant downside of GDP at the end of 2024. halved, to around 3.5 percent of GDP and risks related to the pandemic and the war Intensifying conflicts in the region is public debt at the end of November 2021 in Ukraine. Investment activity under- putting additional pressure on food and stood at 80 percent of GDP, declining pinned by the inflow of EU funds is ex- energy prices which were already on the by 7.3 percentage points compared to the pected to pick-up strongly in 2022 and rise. While the government has promptly end of 2020. moderate thereafter. However, this pri- introduced mitigation measures to cap The strong economic and employment re- marily depends upon the implementation gas price increases, it is still expected to bound raised labor income. However, of government investment plans. Exports rise on average by 20 percent. Moreover, spikes in food prices in recent months put of goods and services are projected to sup- regional political uncertainty and glob- a burden on the most poor and vulnerable port growth, but the pace of growth is ex- al supply disruptions can have implica- as they spend nearly 50 percent of their pected to ease as tourism returns to pre- tions for the economies of host countries budget on necessities. Poverty, measured crisis levels and foreign demand moder- of Croatian migrants. This can potentially as the share of Croatian population living ates. Personal consumption growth might have adverse impacts on remittances and on less than $5.5 a day at 2011 revised PPP remain around 2.5 percent amid rising em- income of Croatians at home. Neverthe- prices, is estimated to have declined to 1.6 ployment and wages. However, positive less, poverty is expected to fall to 1.3 per- percent in 2021. effects of the increase in wages on personal cent by 2024. TABLE 2 Croatia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.5 -8.1 10.4 3.8 3.4 3.1 Private Consumption 4.1 -5.3 10.0 2.2 2.5 2.7 Government Consumption 3.3 4.1 3.0 2.6 2.5 2.4 Gross Fixed Capital Investment 9.8 -6.1 7.6 10.5 5.3 3.2 Exports, Goods and Services 6.8 -22.7 33.3 6.6 5.3 5.1 Imports, Goods and Services 6.5 -12.3 14.7 6.9 4.7 4.4 Real GDP growth, at constant factor prices 3.6 -6.3 8.9 3.8 3.4 3.1 Agriculture 1.8 3.6 5.5 3.6 3.6 3.6 Industry 4.8 -1.6 6.7 4.0 3.0 3.0 Services 3.3 -8.4 9.9 3.7 3.5 3.1 Inflation (Consumer Price Index) 0.8 0.2 2.6 6.1 2.2 1.9 Current Account Balance (% of GDP) 3.0 -0.1 3.7 2.0 2.4 2.6 Net Foreign Direct Investment (% of GDP) 6.1 1.3 2.5 2.5 2.4 2.4 Fiscal Balance (% of GDP) 0.3 -7.4 -3.6 -3.2 -2.9 -2.6 Debt (% of GDP) 71.1 87.3 80.7 78.3 76.0 74.0 Primary Balance (% of GDP) 2.5 -5.4 -2.0 -1.7 -1.5 -1.4 a,b International poverty rate ($1.9 in 2011 PPP) 0.3 0.4 0.3 0.3 0.3 0.3 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.6 0.7 0.6 0.6 0.5 0.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 1.8 2.4 1.6 1.5 1.5 1.3 GHG emissions growth (mtCO2e) -1.1 -12.8 4.3 1.7 0.6 1.3 Energy related GHG emissions (% of total) 86.8 85.1 84.7 84.2 83.5 82.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2019-EU-SILC.Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 16 Apr 22