Page 45 - SE Outlook Regions 2023

2.4.2 External environment

Croatia’s current account surplus is forecast at 2% of GDP in 2023
versus a surplus of 2.2% of GDP projected for 2022.

The country recorded a deficit of €1bn on its current account in the
second quarter of 2022, according to data reported by the Croatian
National Bank (HNB).

The central bank commented that the balance in the current and capital
account posted a deficit mainly due to the strong increase in the foreign
goods trade deficit, while unfavourable developments were largely
mitigated by an increase in the net exports of services.

In the second quarter, the current account deficit was significantly
higher compared to a year earlier, when it stood at €837.8mn. Foreign
trade in goods posted a deficit of €1.5bn, up from €1.3bn a year earlier.
The growth of exports (40.5% year on year) and of imports (50.5% y/y)
was robust, strongly reflecting the growth of goods prices, especially
the prices of energy products and other raw materials in the global
market.

On the other hand, net exports of services moved up by 113.3% y/y,
thanks mainly to a rise in income from spending by foreign tourists,
which more than doubled in the second quarter of 2022 from the same
period in the previous year. The primary account posted a surplus of
€3mn versus a surplus of €17mn in Q2 2021.

Statistics office data showed that Croatia’s foreign trade improved in
2022 despite the Russian war in Ukraine mainly thanks to the strong
tourist season. The foreign trade deficit amounted to HRK90.24bn
(€11.97bn) in January-August, up from HRK48.25bn a year earlier.

Foreign trade should continue the upward trend in 2023, although the
growth pace is expected to slow down due to the expected global
economic recession.

2.4.3 Inflation and monetary policy

Inflation in Croatia is expected to slow down in 2023 from the record
high level in 2022. The World Bank says inflation will decline gradually
with improvements in the supply chain. However, it is seen at 10.1% in
2022 and is expected to slow down to 3.9% in 2023. According to the
International Monetary Fund (IMF), consumer prices should rise by
4.9% in 2023 from an estimated 9.2% in 2022.

The government expects that annual inflation will reach 10.4% in 2022
and will slow down to 5.7% in 2023 mainly thanks to improved supply

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