What Does This Mean for the Economy?
Croatia has made a historic achievement in the financial market by obtaining its highest credit rating ever. This milestone brings numerous positive implications for the economy, investments, and citizens while raising questions about how these changes will manifest in everyday life. In this article, we will analyze this historic credit rating and the expected GDP growth and inflation trends to understand Croatia’s current economic state comprehensively.
Croatia’s New Credit Rating
Croatia has achieved its highest-ever credit rating, a significant indicator of the country’s economic stability. Credit rating agency Standard & Poor’s raised Croatia’s rating from BBB+ to A-, with a positive outlook. This improvement sends a strong signal to investors that Croatia has become a more stable and attractive investment destination.
The improved credit rating will enable more favourable borrowing conditions for state and private companies, leading to lower interest rates and better conditions in financial markets. For citizens, this could mean more favourable borrowing conditions, including lower interest rates on loans and improved access to financing.
Impact on the Business Sector
The business sector can also expect more significant investment opportunities. Given that a higher credit rating translates into better capital market conditions, Croatia becomes a safer and more attractive destination for foreign investment. Companies can expect improved financial conditions for operations and broader access to capital, further fueling economic growth. This is especially important for businesses engaged in international operations and borrowing, as they can expect lower financing costs and better access to capital.
GDP Growth: Croatian National Bank’s Projections for 2024
In addition to the more robust credit rating, the Croatian National Bank (HNB) forecasts an acceleration in economic growth in the coming period. HNB’s autumn macroeconomic projections forecast real GDP growth to rise to 3.6% in 2024, an increase from 3.1% in 2023. The main drivers of this growth will be personal consumption and investments. HNB expects intensified investment activity, and personal consumption should grow thanks to increased disposable income. Although net exports will have a minor impact due to rising imports and declining service exports, overall GDP growth remains positive.
Forecasts for the coming years remain optimistic. GDP growth of 3.2% is expected in 2025 and 2.7% in 2026, confirming stable economic growth.
Employment Growth and Unemployment Reduction
HNB analysts expect employment to continue growing while unemployment decreases. Nominal gross wages could rise significantly more than previously expected in 2024. Analysts expect vigorous economic activity to drive a 3% growth in employment in 2024 compared to the previous year. HNB expects further employment growth in 2025 and 2026, although at a slower pace. The registered unemployment rate could fall to around 5.2% of the labour force in 2024. As for wages, HNB expects the average gross salary to increase nominally by 14.9% year-on-year in 2024, a similar rate to the previous year, while real wage growth could accelerate to 10.8%.
Inflation at the Lowest Level Since 2021
Another positive development is inflation. According to the Croatian Bureau of Statistics (DZS), inflation in August 2024 stood at 1.8%, the lowest level since March 2021. This stabilization of prices indicates the successful suppression of cost-of-living pressures, although certain categories, such as restaurant and hotel prices, still show growth.
DZS also predicts inflation will slow further in the coming years, with the average annual inflation rate expected to drop to 3.9% in 2024 and 2.3% by 2026. However, due to potential energy price increases at the end of 2024 and the beginning of 2025, there is a risk of a temporary inflation spike. Prices remained stable compared to previous months, but monthly declines were recorded in categories such as clothing and footwear. The Harmonized Index of Consumer Prices (HIPC) shows a year-on-year price increase of 3%, with further inflation moderation expected in the future.
These indicators collectively point to positive developments in Croatia’s economy, promising benefits for companies and citizens. Improvements in credit rating and economic indicators lay a foundation for optimism about the future, even if changes aren’t immediately felt in everyday life.
What Do These Indicators Mean for the Business Sector and Citizens?
Improved credit ratings, GDP growth, and inflation stabilization are beneficial news for Croatia’s business sector and citizens. Lower Borrowing costs and more stable business conditions could open up new investment and growth opportunities. For businesses, especially those focused on international markets, investors will increasingly recognize Croatia as a safe investment destination, further boosting economic recovery.
Citizens, on the other hand, can expect more favourable financing conditions. Lower loan interest rates and price stabilization in consumer goods could ease many financial challenges. However, an important question remains about when and how these changes will directly impact everyday life.
Confida Croatia: Your Partner in New Economic Conditions
In light of these positive economic trends, Confida Croatia is ready to provide critical support to companies seeking new market opportunities. Our financial consulting and analysis expertise can help you better understand how these changes impact your business and how to leverage them best to achieve your goals.
Feel free to contact us for more information on how we can help your business adapt to the new market conditions. With our experience and knowledge, we can ensure your success in this exciting period of economic growth.
Contact us today and discover how Confida Croatia can be your partner in business success!
