Croatian Economy to Grow 2.8%, European Commission Says

Total Croatia News

ZAGREB, February 7, 2018 – The European Commission expects Croatia’s Gross Domestic Product (GDP) to grow at a rate of 2.8% this year, the same projection as one made three months ago, as the slowdown in the last quarter of 2017 is likely to carry over to 2018.

In its Winter Economic Forecast, released on Wednesday, the Commission projected Croatia’s growth for 2017 at 3.2%, the same as in the Autumn Forecast. 2019 is expected to see growth of 2.7%. At this pace, the Croatian economy is set to reach its pre-recession level in 2019, the Commission said.

“Following revisions to the national accounts, real GDP growth in 2016 is now reported at 3.2%, 0.3 pps higher than before. This rate of growth was likely maintained in 2017, as economic activity was strong in the first three quarters of the year and some high frequency indicators point to a slowdown in the last quarter. Slower momentum in Q4 will likely carry over to 2018, with real GDP growth forecast at 2.8%, and 2.7% in 2019. At this pace, the economy is set to reach its pre-recession volume of output by the end of 2019,” the report says.

This will be the fourth year that the Croatian economy has been recovering and the Commission expects growth to remain “solid and broad-based”.

Private consumption remains the main engine of growth, with rising wages and employment spurring disposable income and consumer confidence. In 2017, the recovery in investment was curbed by the crisis in the distressed food-processing and retail giant Agrokor. “However, investment is expected to pick up as credit activity is growing in the corporate sector, although the outcome of Agrokor’s operational and financial restructuring still presents risks,” the Commission said.

“Indicators point to another record season in tourism, but goods exports also performed strongly. Overall, net exports are expected to weigh on growth as strong domestic demand fuels demand for imports. Employment is increasing steadily, while the previously recorded sharp declines in the unemployment rate are expected to ease in line with the expected slowdown in net outbound migration,” it added.

Tightening labour market conditions, particularly in sectors with labour shortages, and wage hikes in the public sector, are expected to keep wages on the rise. Further inflationary pressures are expected from energy prices. Overall, HICP inflation reached 1.3% in 2017 and is forecast to continue rising, with core inflation picking up to 1.6% in 2018 and 1.7% in 2019.

The European Commission’s forecasts are slightly more favourable than the World Bank’s, which in January projected Croatia’s GDP growth rate for 2018 at 2.6%, reaffirming its updated estimates from last October. The World Bank forecast growth for 2017 at 3.0%.

The International Monetary Fund expects the Croatian economy to grow at a rate of 2.7% this year, while the Croatian National Bank has forecast GDP growth at 2.9%. The government has drawn up the budget for 2018 based on a growth estimate of 2.9%.

The Croatian Bureau of Statistics is due to release data on economic growth for 2017 later this month. In the first three quarters of last year, the Croatian economy rose by about 3% on average, while in 2016 it grew by 3.2%.

Most local and foreign analysts also expect growth to slow down in 2018. Analysts at Addiko bank were the most optimistic, forecasting growth at 3.0%. Erste bank has projected growth at 2.8% and Raiffeisenbank Austria at 2.3%.

The economy of the 28-member EU is expected to expand by 2.3% in 2018 and by 2.0% in 2019. The same rates are also forecast for the 19-member euro area. Excluding the United Kingdom, which is in the process of exiting the Union, the EU27 economy is projected to grow at 2.5% in 2018 and 2.1% in 2019.

Broken down by member states, the highest growth rates are expected in Malta (+5.6%), Romania (+4.5%), Ireland (+4.4%), Slovenia and Poland (both +4.2%). The slowest growth is expected in the UK (+1.4%), Italy (+1.5%) and Belgium (+1.8%).


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