Croatian & Slovenian Standard of Living Improves in 2023

According to the latest release by Eurostat, in GDP per capita purchasing power parity (PPP) terms, Croatia reached 76% of the EU average in 2023, while Slovenia reached 91% of the EU average. In this overview, we’ll detail how other countries performed, and how they compared to these regional markets.

Recently, Eurostat, the EU’s statistical office, released the latest report on the GDP per capita PPP comparison between the EU countries.

EU countries GDP per capita PPPs comparison (2023, % of the EU average)

Source: Eurostat, InterCapital Research

As we can see in the graph above, there is a huge disparity between the wealthier members of the EU and the less wealthy countries. In fact, the wealthiest country in terms of GDP per capita PPPs in the EU during 2023 was Luxembourg, at 240% of the EU average, followed by Ireland at 212%, and the Netherlands at 130%. On the other hand, the least wealthy country was Bulgaria, which recorded 64% of the EU average, followed by Greece at 67%, and Latvia at 71%.

Croatia placed at 76% of the EU average, putting it squarely in the bottom group of the countries, while Slovenia recorded 91% of the EU average, putting it in the middle of the EU.

EU countries’ GDP per capita PPP change since the end of 2019 (2023 vs. 2019, p.p. change)

Source: Eurostat, InterCapital Research

If we compare the standard of living to 2019, we can see that more than a third of the countries recorded a decrease in the standard of living, with the largest decrease recorded by Luxembourg at -21 p.p., followed by Germany at -9 p.p., and Austria at -4 p.p. Others remained in the low to mid-single-digit level decreases, but decreases nonetheless in a 4 year period. On the other hand, we can see that excluding Ireland, most of the countries that recorded improvements in the standard of living were the ones that were below the EU average, which of course makes sense. This is due to the fact that various EU funds help these states the most to converge with the EU average, as these countries are net receivers of the funds from the EU funds.

Looking at the countries themselves, Ireland recorded a 22 p.p. improvement in the standard of living, followed by Bulgaria at 13 p.p., Romania at 12 p.p., and Croatia at 11 p.p. In other words, while many of the wealthier countries recorded slow to no GDP growth, due to the pandemic and later on, inflation, higher interest rates, and the war in Ukraine, developing countries managed to significantly close the gap.

EU countries’ GDP per capita PPP change since the end of 2010 (2023 vs. 2010, p.p. change)

Source: Eurostat, InterCapital Research

Compared to 2010, the differences are even more stark. Ireland recorded an increase of 81 p.p. compared to 2010, followed by Lithuania at 26 p.p., Romania at 25 p.p., Bulgaria at 19 p.p. Croatia stands at 15 p.p., while Slovenia stands at 6 p.p. On the other hand, Luxembourg recorded a 35 p.p. decrease, Greece recorded 18 p.p., Sweden 11 p.p., while Finland recorded a 10 p.p. decrease.

There are several points that can be taken away from this data. Firstly, excluding Ireland which is a case study by itself, the largest convergence with the EU average came from under-developed EU member states. This is even more true the longer time period we compare. Secondly, countries that usually recorded decreases, as for example compared to 2010 are the wealthiest countries, excluding in this case Greece. Greece itself had a lot of issues during the last financial crisis and the Euro debt crisis as we know, and as a result, a significant decline in the standard of living occurred.

Besides Greece, Luxembourg, Sweden, Finland, and others recorded an overall decrease in the standard of living, but looking at these numbers might be a little deceptive. The reason why is the fact that it is compared to the EU average, which is also comprised of the faster-growing less developed member states. In other words, as these countries grow, so does the EU average increase.

On the flip side, the more developed countries have a slower, but steadier GDP growth, and this slows down even further the more developed they become. As such, the only way for them to actually increase their GDP per capita PPP is to record above-average EU GDP growth, and to maintain their position, they would have to record the same GDP per capita PPS growth as compared to the EU average. Neither of these things usually happens, leading to the more developed countries recording a “deterioration” in the standard of living.

Of course, real deterioration did occur in many EU countries, especially in the last couple of years due to elevated inflation across the board, and wages having a hard time keeping up with said inflation.

Coming back to the region, Slovenia’s growth has been steady, although as it is a quite small and developed economy, further convergence to the EU average should be slower. Croatia on the other hand, has a lot more room to grow, and this growth is possible if we look at some other regional peers. For example, already in 2022, Romania managed to match Croatia in this metric and surpassed it by 2 p.p. in 2023.

Croatia is projected, in the 2021-2027 financial period through EU fund allocation to be allocated EUR 25bn at current prices. This represents app. a third of the 2023 GDP, while growth is also expected above the EU average. For example, the latest EC forecast for Croatia’s 2024 real GDP growth is 2.6%, as compared to 2% for the EU. Combined, this could lead to further convergence in the coming period.

Category : Flash News

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