Page 13 - bneMag Dec22

bne December 2022 Companies & Markets I 13
Croatia inflation y/y
The country will also benefit from EU funding under the Recovery and Resilience Plan, which will require reforms that may boost investment longer term. This is important for Croatia, as the country faces issues of low productivity growth and lack of competitiveness, as well as its declining population that has squeezed the labour market.
Growth tails off in Slovenia
The slowdown has already started in Slovenia in Q3, as noted by the central bank, which said in October that quarterly GDP growth was moving to quarter-on-quarter stagnation in the third quarter. Assuming similar trends in the last quarter, means an annual growth of around 6%. After recovering from the coronacrisis, growth in Slovenia's industrial sector has fluctuated recently.
This came after the Slovenian economy expanded by a real 8.2% in the second quarter of 2022, following 9.8% growth in the previous quarter.
The European Commission anticipates “significantly lower” growth “due to a weaker external environment, high uncertainty and still high inflation”. This will lead to a temporary dip in private consumption, previously an important growth driver, as real incomes are eroded
by inflation.
On the other hand, public investment is set to remain strong, and the Commission expects exports to keep growing, even with weaker export demand than previously projected.
Private consumption already recorded a quarterly decline in Q2, as pointed out by the EBRD, which expects the drop in domestic demand and the weaker Eurozone economy to slow growth down to 1.8% (somewhat more optimistic than the European Commission’s projection).
Headwinds for Montenegro
Montenegro’s economy “is expected to decelerate amid headwinds from high inflation, increased political uncertainty, as well as tighter financing conditions and weaker external demand,” the European Commission said.
It also pointed to Montenegro’s weakening fiscal position, as new spending measures have been announced. This will
Slovenia industrial production y/y
Source: Croatian Bureau of Statistics
Slovenia inflation y/y
Source: SURS
The European Commission forecasts a technical recession
in Croatia in the last quarter of 2022 and the first quarter
of 2023, resulting from a combination of “persistently high inflation, negative real wage growth and a decline in business and consumer confidence”.
Other IFIs have also projected a sharp slowdown, with the World Bank noting that rising uncertainties in the external environment and inflation are weighing on real incomes and external demand.
Despite the positive growth, the World Bank warned: “Soaring food and energy prices hurt consumers, especially the poorest and most vulnerable ... Worries about the economy, food prices, and energy prices are almost universal.”
Looking ahead, “The main challenges pertain to the implications of the war in Ukraine, particularly, gas imports from Russia, decline in real incomes as a result of rising inflation, monetary policy tightening, rising financing costs, and uncertainty. In addition, a slowdown in key trading partners like Germany could also have a negative impact on exports,” the World Bank said.
“Risks are tilted to the downside due to high uncertainty, a slowing global economy and potentially costlier financing,” it added.
From a brighter perspective, Croatia is due to join the Eurozone at the beginning of 2023. Rating agency Fitch commented at the end of October – when upgrading its 2022 GDP growth forecast from 3.3% to 6.1% – that the upcoming euro adoption should help the Croatian economy remain resilient to external shocks, along with its improved fiscal and external positions.
Source: SURS
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