The European Commission raised its growth forecasts for the Croatian economy on Monday, projecting a GDP growth rate of 1.6 percent for this year and 2.3 percent for next year. Inflation is expected to decline to 6.9 percent this year and 2.2 percent next year.

According to the Commission's spring economic forecasts, the new estimates indicate higher growth compared to previous projections. The Commission had previously expected a growth rate of 1.2 percent for this year and 1.9 percent for next year, but the revised forecasts now show a more optimistic outlook.

It's worth noting that the Commission's GDP growth estimates are slightly lower than the Croatian government's projections, which recently increased their forecast to 2.2 percent for this year and 2.6 percent for next year.

The Commission's revised forecasts for the European Union as a whole and the euro area reflect better-than-expected economic performance, dispelling concerns of a recession. The EU is now expected to experience GDP growth of 1 percent this year and 1.7 percent next year, while the euro area is projected to grow by 1.1 percent and 1.6 percent, respectively.

Positive effect of closer intergration with EU 

The Commission emphasizes the positive effects of Croatia's entry into the euro area and the Schengen zone, which are expected to contribute to future GDP growth. It also highlights the potential for stronger performance in the external market and a favourable tourist season to further improve the country's economic outlook.

The Commission expects continuous growth in real wages and a slowdown in inflation, which should support personal consumption in Croatia. Additionally, investments are anticipated to receive a boost from European funds, leading to increased confidence and economic expansion.

The projections also indicate further employment growth, with record-low unemployment rates and a decline in the public debt-to-GDP ratio. However, potential risks include the possibility of higher inflation due to labour shortages driving up wages and an increase in rental prices associated with rising housing costs. Overall, the Commission's forecasts suggest a positive economic trajectory for Croatia, with the potential for even better outcomes than currently estimated.