The Croatian economy will grow by 3.3 percent in 2024, while growth will slow to 2.8 percent in 2025, according to forecasts by the chief economists of Croatia's four largest banks in the latest "HUB Outlook" published on Friday.

As stated in the HUB release, bank economists and economists at the European Commission underestimated growth for 2023 at the end of last year, and the same applies to earlier estimates for this year, which predicted 2.5 percent growth for the Croatian economy in 2023.

"Although the outcome for this year is still unknown – we only know that real GDP grew at a rate of 3.9 percent in the first quarter – we are quite confident that this year's economic growth will exceed earlier expectations. Accordingly, the latest forecasts have been revised upward. In its spring forecasts, the European Commission raised the expected growth rate for Croatia to 3.3 percent, and the average forecast of the chief economists of Croatian banks from these HUB Outlooks matches the stance of the European Commission economists," HUB highlighted.

According to Croatian economists, economic growth in 2024 will primarily be driven by personal consumption, which is expected to grow by an average of 4.5 percent, with the least optimistic economist forecasting a growth of 3.9 percent and the most optimistic at 5.1 percent. This is followed by investments, with an expected growth rate of 3.8 percent, while exports are expected to grow by 2.7 percent.

"With inflation settling around 3.2 percent and double-digit growth in average nominal wages, a strong contribution from personal consumption to growth is inevitable. However, part of the wage growth is linked to increased government spending and deficit," HUB stated, with economists on average expecting the general government deficit to be around 2.5 percent of GDP.

As for the forecasts for 2025, HUB predicts growth of 2.8 percent, while the Commission forecasts 2.9 percent. "The slowdown in 2025 should not be significant," HUB noted.

Economists predict that the contribution of exports, expected to grow at a rate of 3.6 percent, will take precedence over personal consumption, which could slow to around three percent, while investments could have a similar contribution as this year.

They forecast a further decline in the unemployment rate, from 5.7 percent this year to 5.4 percent next year, while inflation is expected to slow further to around 2.6 percent. There is also a forecast of significantly slower wage growth than this year, at 5.6 percent, but also a significantly smaller budget deficit of 0.8 percent of GDP, which should bring the public debt ratio below the 60 percent threshold.

Asked about future decisions by the European Central Bank (ECB) on interest rates, economists agreed that two more reductions of 25 basis points each can be expected this year, which would bring the base interest rate to 3.25 percent by the end of the year.

The president of the HUB club of chief economists of Croatian banks is Ivana Jović from Privredna banka Zagreb (PBZ), her deputy is Hrvoje Dolenec from Zagrebačka banka (Zaba), and the club also includes Alen Kovač from Erste bank and Zrinka Živković-Matijević from Raiffeisen bank. The latest survey among them was conducted in June this year, and the results were processed by Arhivanalitika.