WASHINGTON, October 5, 2023 – Economic activity in Croatia has been revised upwards to 2.7% for 2023, according to the World Bank Economic Update for Emerging and Developing Market Economies (EMDEs) Europe and Central Asia region, released today.
This increase is mainly due to a recovery in personal consumption and strong growth in tourism, but also to investment activity supported by European funds. Despite significant headwinds, Croatia’s growth is expected to remain close to 3% over the forecast period (2.5% in 2024 and 3% in 2025), as inflation is expected to moderate and the external outlook improves. ‘improve. Steady growth and a reduced need for fiscal support should help contain the budget deficit and keep public debt on a downward trajectory, which is expected to fall below 60% of GDP by the end of 2025.
The growth outlook for the region as a whole has also been revised upwards, to 2.4% this year. The recovery reflects improved forecasts for war-stricken Ukraine and Central Asia, as well as consumer resilience in Turkey and better-than-expected growth in Russia due to an increase in government spending in the military and social transfers. Excluding Russia and Ukraine, regional production is expected to grow by 3% in 2023. However, growth remains weak compared to long-term averages before the pandemic. Overall, growth in half of Europe and Central Asia is expected to be slower or little changed in 2023 compared to 2022.
During the period 2024-2025, growth is expected to reach 2.6% per year, against a backdrop of weak expansion of the European Union (EU) – the region’s largest trading partner –, high inflation, tighter financial conditions and fallout from Russia’s invasion of Ukraine.
“Shocks from Russia’s invasion of Ukraine, the cost of living crisis and climate risks are creating formidable challenges in Europe and Central Asia,” said Antonella Bassani, vice president of the World Bank for the Europe and Central Asia region. “A new approach will be needed for countries to revive productivity growth, achieve better economic and social outcomes, improve resilience and accelerate efforts to decarbonize the economy.”
Downside risks cloud the outlook for emerging countries in Europe and Central Asia. High inflation could persist amid increased volatility in global commodity markets and a surge in energy prices. Global financial markets could become more volatile and more restrictive due to tightening financing conditions. Global growth for 2020-2024 is weaker than in any five-year period since 1990 and could weaken further.
“Budget deficits are broadly unchanged this year, despite governments’ earlier plans to implement fiscal consolidation after large spending increases in recent years due to COVID and the cost of living crisis,” said Ivailo Izvorski, the World Bank’s chief economist for the cost of living crisis. Europe and Central Asia region. “The growing cost of an aging population, higher interest payments, investments needed for climate change mitigation and adaptation, and dealing with other overlapping crises will keep pressure on budgets governmental.”
Ukraine’s economy is expected to grow 3.5% this year after contracting 29.1% in 2022, the year of Russia’s invasion of the country, thanks to more stable electricity supplies, increased spending public sector, continued donor support, better harvest and diversion. of certain exports across the country’s western borders.
Turkey is expected to grow 4.2% this year, reflecting reduced political uncertainty and resilient consumer demand. However, growth is expected to slow to an average of 3.5% in 2024 and 2025, as domestic demand calms in the face of rising interest rates and gradual fiscal consolidation. In Russia, increased public spending and resilient consumption are expected to result in growth of 1.6% in 2023, which would weaken to 1.3% in 2024 and 0.9% in 2025 due to capacity constraints and slowing consumer demand.
In Central Asia, growth is expected to strengthen to 4.8% this year, and average 4.7% in 2024 and 2025, assuming inflation moderates.
In contrast, in the Western Balkans, growth is expected to slow to 2.5% this year, with a forecast increase to 3.3% in 2024 and 2025, reflecting moderating inflationary pressures, a gradual recovery of exports and an increase in public spending in favor of donors. supported infrastructure projects. In 2023, consumption remained resilient in Albania, Kosovo and Montenegro, supported by the recovery of tourism, but weakened in Bosnia and Herzegovina, North Macedonia and Serbia due to export demand weakest in the EU.
Intensified trade and increased flows of money and people continued to support economic activity in some economies, notably in Central Asia and the South Caucasus. Armenia, Georgia and Tajikistan remain the most dynamic countries in the region for the second year in a row.