Economists are even more optimistic in their forecasts than the government.
In its semi-annual economic forecast, the Zagreb Institute of Economics (EIZG) announced that the Croatian economy would grow by more than three percent in the next two years. Unlike the government, which in its economic and fiscal policy guidelines forecasts a slowdown in GDP growth in 2018 to about 2.8 percent, EIZG economists believe that the economy will grow by 3.3 percent, reports Večernji List on September 20, 2017.
However, there are many potential negative factors which could bring the growth rate down, from relations with neighbouring countries, which could halt significant investments such as the Pelješac Bridge, to the challenges to budgetary stability from various lawsuits against the state.
The EIZG says that positive trends could be seriously jeopardized by the growing debt of outstanding liabilities in the healthcare sector, the restructuring of the Croatian Motorways debt, the final decision on buying INA’s shares from MOL, lawsuits associated with the Agrokor crisis, and the potential interest rate growth in the European Union. They also point out that the government of Andrej Plenković has a rather weak reform potential.
However, if adverse impacts are avoided, the budget could be in surplus as early as next year. The economists believe that the general government budget in 2018 will be in a surplus of 0.5 percent of GDP, which is almost 1.8 billion kunas. They are somewhat more reserved about the possibility of the reduction of public debt than government forecasters. The EIZG expects public debt to decline to a level of about 80 percent of GDP next year, while the state guidelines claim that the debt at the end of 2018 will be at 78.3 percent of GDP, which means there is a few billion kunas difference between the two forecasts.
The expansion of the economy will continue to be based on higher spending of citizens and the state, and partly on higher exports of goods and services. However, since the growth of imports will also accelerate due to higher consumption, the impact of exports on economic growth will be decreasing.
The Zagreb Institute of Economics expects significant increase in credit activity in 2018. They are convinced that next year’s credit growth will be around 3.4 percent. The exchange rate of the kuna will remain very similar to the current one and movements will be focused on the exchange rate of 7.44 kunas per one euro, although the purchasing power will weaken slightly. The growth of tourist spending, retail trade and the correction in the price of electricity will increase general prices next year by up to 1.5 percent, while inflation this year has been kept at 1.1 percent, due to the fall in oil prices in the global markets.
Translated from Večernji List.
