In Q3 2024, Croatian GDP growth in real terms amounted to 3.9% YoY, while for the seasonally-adjusted numbers, the growth was 4.1% YoY and 0.8% QoQ. This means that Croatian GDP growth was 2nd only to Malta (+4.9% YoY), and was at several times the rate compared to many other members. Furthermore, Croatian GDP at constant prices in 9M grew by 3.8% YoY, and we expect 2024 GDP to grow by 3.6% YoY.  

The latest flash estimate for the Croatian GDP has been released for Q3 2024, and the numbers are very positive. According to the Croatian Bureau of Statistics, the real growth rate amounted to 3.9% YoY in Q3. Meanwhile, for the seasonally adjusted data, the YoY growth amounted to 4.1%, while the QoQ increase amounted to 0.8%.

Croatian GDP growth rate* (2007 – Q3 2024, YoY, %)**

Source: DZS, InterCapital Research

*Quarterly Gross Domestic Product, seasonally-adjusted real growth rates

**FY 2024 GDP growth based on our internal estimates

With Q3 being the latest data, it is worth taking a look at what are the new developments that led to this growth. To understand this, a look at the GDP growth drivers is required. Final consumption as the main driver of GDP growth grew 5.3% YoY (Q2 2024: 5.2%) and outpaced the same period last year by 1.6 p.p. Household spending, the largest category of final consumption, grew by 5.5% YoY, down by 0.5 p.p. QoQ, but achieving an almost double growth rate compared to the same period last year. The General government expenditure also had an accelerated growth rate of 5.3% YoY, faster than the previous quarters but slower than the same period last year. The absorption of cash from various EU funds supported further growth of government spending. For private consumption, higher real wages and the slowdown in inflation, as well as a better-than-expected economic outlook raised consumer sentiment. Public sector wage reform increased all wages for public servants, both due to the inflation’s impact, but also as an incentive for the April 2024 Parliamentary elections. In fact, as compared to March 2023, the wages were up 32% YoY at the end of March 2024. Due to ongoing inflation, wage growth continued, both for public and private sector workers, although the public sector experienced a slowdown after the end of the elections and after experiencing the aforementioned increase. At the same time, household spending was also underpinned by a strong growth in consumer loans, reaching EUR 24bn, an increase of 12% YoY.

Moving on, investments also continued to support the above-average growth of the Croatian economy, growing by 9.2% YoY in Q3, and 9% when we look at 9M figures at constant prices. The growth was supported by increased public investment, private sector expansion, investments in tourism (such as infrastructure), and also the utilization of EU funds. Main examples of big investments currently supporting GDP growth are the following: EUR 400m infrastructure project in Istria that includes a 5.6km long second tunnel through Učka, EUR 350mm worth of railway Križevci-Koprivnica-Hungarian border that is financed by proceeds from EU funds and built by Cengiz İnşaat Sanayi ve Ticaret, and EUR 200m campus built by an electric-car producer Bugatti Rimac, among others. Private investments are quite big in the whole mix despite investment support from EU funds. Nevertheless, investments will remain the second most important generator of GDP growth in Croatia for years to come.

Lastly, taking a look at exports and imports, exports of goods and services grew by 1.5% YoY in Q3, but the dynamic here is a little bit different than what we usually see in Croatia. Goods exports have grown by 6.3% YoY, driven by the good results of many of the Croatian companies that are focused on exports, which was also supported by the quality & competitive prices of Croatian products. Services exports, on the other hand, dropped by 1.8% YoY in Q3, and this was largely due to the strong price increases in the tourism industry which led to stagnating tourist numbers.

The reason why this dynamic is a little bit different is that usually, the opposite happens; tourism is Croatia’s biggest services export and has been the hallmark of the country’s economy. Growth is always expected (and needed) in this category. On the flip side, goods exports usually don’t grow as much, but this could be interpreted as positive news for Croatian competitiveness abroad. Imports, on the other hand, increased by 4.1% YoY, with goods imports growing by 3%, supported by inflation in the countries of origin, higher disposable incomes, and thus higher demand – which combined lead to higher imports of means of production for companies. Services imports grew even more sharply – at 9.6% YoY in Q3, due to increased outbound tourism, but also higher demand for foreign professionals in the country. As such, the competitiveness of Croatian goods is increasing but due to the strong increase in imports, the net export position still doesn’t positively contribute to GDP growth. However, it should be noted that the spread between the exports and imports of goods and services is narrowing. With more competitive goods and services, there’s a possibility that next year will be the first one to show positive results.

Q3 2024 GDP growth comparison with available EU countries* (Q3 2024, %)

Source: Eurostat, InterCapital Research

*Most of the Q3 data are projections/estimates, subject to change

Compared to the EU, Croatia grew significantly faster, with the Eurozone Q3 growth rate at 0.4%, meaning that Croatian GDP growth was several times higher. Compared to other countries, Croatia was outpaced by only Malta, which recorded a strong 4.9% growth YoY in Q3, while other solid performers include Cyprus and Malta, which recorded growth rates of 3.8% and 3.4%, respectively. Outside the relatively small economy of Malta, this would make Croatia the fastest-growing economy in the EU during this period, which combined with the recent credit rating upgrades by Moody’s, Fitch, and S&P Global to A (A- or A3, depending on the agency) does show that Croatia is converging with the EU average. As such, we expect this year’s GDP growth rate to end up at 3.6% YoY, in line with these trends.