Economic Survey of Croatia 2023 - Presentation

OECD ECONOMIC SURVEY OF CROATIA For faster and sustainable convergence Zagreb, 21 September 2023

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Growth is resilient GDP growth, annual % 15 Croatia

Peers

OECD

10 5 0 -5 -10

2015

2016

2017

2018

2019

2020

2021

2022

Note: The shaded area shows projections. Peers are an average of the Czech Republic, Hungary, the Slovak Republic and Slovenia.

Source: OECD Economic Outlook 113 (database), updated.

2023

2024

The labour market is tight Labour market indicators Y-o-y % change 6

← Employment growth

Unemployment rate →

% of labour force 12

4

11

2

10

0

9

-2

8

-4

7

-6

6

-8

5

2018

2019

2020

2021

2022

2023

Note: 2023Q1 and 2023Q2 observations are OECD preliminary estimates, based on published labour force data adjusting for a series break between 2022Q4 and 2023Q1.

Source: OECD Economic Outlook (database).

Inflation is slowly declining Inflation, year-on-year

% 20

← Core inflation

← Headline inflation

Energy inflation →

% 40

15

30

10

20

5

10

0

0

-5

-10

-10

2018

2019

2020

2021

2022

2023

Note: Core, headline and energy inflation are based on the harmonised consumer price index. Core inflation excludes energy and food products.

Source: OECD Economic Outlook (database) and Eurostat.

-20

Banks are better capitalised than in other countries Regulatory Tier 1 capital to risk-weighted assets Q2 2023 or latest available % 25 20 15 10 5 0

Source: IMF, Financial Soundness Indicators (database).

Fiscal policy should avoid a widening deficit in 2023 and 2024 Fiscal balance and fiscal balance corrected for the business cycle 2 1

Fiscal balance, % of GDP

Fiscal balance corrected for the business cycle,% of potential GDP

0 -1 -2 -3

-4 -5 -6 -7 -8

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Note: The fiscal balance corrected for the business cycle measures the governments fiscal stance once cyclical variation in revenues and spending are taken into account and excludes net one-off operations.

Source: OECD Economic Outlook 113 (database), updated.

Growth is projected to remain resilient in the short term

Annual growth rates, volumes unless specified

2021

2022

2023

2024

Gross domestic product (GDP)

13.1

6.2

3.0

2.4

Private consumption

9.9

5.1

2.3

2.3

Investment

4.7

5.8

2.6

2.6

Unemployment rate (% of labour force)

7.6

7.0

6.0

5.8

Consumer price index

2.7

10.7

8.5

4.3

Fiscal balance (% of GDP)

-2.5

0.4

-0.1

-1.0

General government gross debt (% of GDP, Maastricht definition)

78.3

68.8

63.8

61.0

Source: Source: OECD Economic Outlook 113 (database), updated.

The Recovery and Resilience Plan is furthering progress with reforms and investment Allocation and disbursement of NextGenEU grants and loans % of GDP 18 16 14 12 10 8 6 4 2 0

Allocation

Note: Disbursements as of 16 June 2023.

Source: European Commission, Recovery and Resilience Scoreboard.

Disbursement

Robust growth needs to continue for incomes to converge Real GDP per capita relative to the OECD average

% 100

Croatia

Czech Republic

Hungary

Lithuania

2010

2015

2020

90 80 70 60 50 40

30 20

2000

Note: Real GDP per capita at 2015 prices and PPPs. Source: OECD National Accounts database.

2005

Achieving faster convergence by boosting productivity and investment

10

A more dynamic business environment would spur productivity growth Labour productivity % of USA

Croatia

85

Peers

80 75 70 65 60 55

50

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Note: Figure shows labour productivity as % of the USA values, taken to be the global technological frontier. Labour productivity is measured as real GDP at current USD at purchasing power parity, divided by number of persons employed. Peers is an average of the Czech Republic, Hungary, the Slovak Republic and Slovenia.

Source: Penn World Table Version 10.0; OECD calculations.

Better monitoring regulatory burdens would unlock the benefits of ongoing reforms Product market regulation index Index, 0-6, 0 indicates most competition-friendly regulations 2.5

2023

2018

2.0 1.5 1.0 0.5 0.0

Croatia

Notes: OECD Product Market Regulation Index, preliminary 2018 and 2023 values applying the 2023 methodology.

Source: OECD 2023 PMR database (July 2023).

OECD

Encouraging out-of-court processes would make the judicial system more responsive Days 800

Estimated time to resolve litigious civil and commercial cases at first instance, 2021

700 600 500

400 300 200 100 0

Note: Unweighted average for EU and Peers, which includes the Czech Republic, Hungary, the Slovak Republic and Slovenia.

Source: European Commission (2023), The 2023 EU Justice Scoreboard.

Stronger governance of state-owned enterprises is key given their share in the economy SOEs’ share of total non-agricultural dependent employment, 2019 % 10 9 8 7 6 5 4 3 2 1 0

Source: OECD (2021), OECD Capital Market Review of Croatia: Capital market reforms for recovery and improved business dynamics in Croatia.

Encouraging ethical behaviour among public officials would complement anti-corruption measures Corruption by sector, “Control of Corruption” Scale: 0 (worst) to 1 (best), 2021 Executive embezzlement

Judicial corruption Executive bribery

OECD

Public sector embezzlement

Croatia

Public sector bribery

Legislature corruption 0 Note: Unweighted average for OECD. Source: Varieties of Democracy Project, V-Dem Dataset v12.

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Raising skills and participation to promote incomes and equality of opportunities

16

A big push on training and activation would help solve shortages of skilled workers Share of firms reporting lack of right skilled staff as an obstacle to investment, 2021 100

%

80 60 40 20 0

Source: EIB (2022), Investment Survey.

Employment rates among younger and older persons can be strengthened Employment rates, 2022 OECD

Croatia % 100

A. Women

% 100

90

90

80

80

70

70

60

60

50

50

40

40

30

30

20

20 Age group

Source: Eurostat and OECD Labour Force Statistics (database).

B. Men

Age group

Pension reform should encourage Croatians to retire later Years 50

Average number of years worked, 2019

45 40 35 30 25 20

Note: An unweighted average across men and women is shown.

Source: European Commission (2021), Ageing report 2021

Longer working lives would reduce old-age poverty Severe material deprivation rate, 2020

% 12

Croatia

10

EU27

8 6 4 2 0

18 and over Overall

18-24

25-49

50-64

Employed

65 and over

50-64

65 and over Retired

Note: The severe material deprivation rate is the share of respondents living in households unable to afford at least four of the following : unexpected expenses, a oneweek annual holiday away from home, a meal involving meat, chicken or fish every second day, the adequate heating of a dwelling, durable goods like a washing machine, colour television, telephone or car, or are confronted with payment arrears.

Source: Eurostat (2022), Income and Living Conditions (database).

Attracting skilled immigrants and encouraging return migration would increase labour supply Migration flows Thousands 50 40

Immigrants

Emigrants

Net migration

30 20 10 0 -10 -20 -30

-40 -50

2010

2012

Source: United Nations, World Population Prospects 2022, and Eurostat.

2014

2016

2018

2020

Increasing housing supply and reforming property taxation would improve housing access and mobility Number of dwellings per 100 inhabitants 2020 or latest available year 60 50

40 30 20 10 0

Note: Unweighted OECD average.

Source: OECD Affordable Housing Database – http://oe.cd/ahd; European Statistical System, Census Hub website.

Ensuring robust growth is also sustainable

23

Further investing in public transport and restricting polluting cars would reduce air pollution % of population exposed to particle air pollution 30 25 20 15 10 5 0

Note: Air pollution measured in PM2.5 particles.

Source: OECD Environmental Statistics (database).

2020 or latest available year

2010

Pricing greenhouse gas emissions consistently and investing in energy efficiency would help reduce emissions Greenhouse gas emissions 30

Mt CO2 eq.

Total emissions (historic)

Projections to meet current national target

25 20 15 10 5 0

1990

2000

2010

Note: GHG emissions include land use, land-use change and forestry (LULUCF).

Source: OECD (2022), Environment Statistics (database).

2020

2030

2040

2050

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