ZAGREB, February 28, 2018 – Croatia’s economy grew in Q4 2017 by 2% from the same period of 2016, which is its slowest growth rate since Q2 2015 and a result of a mild slowing down of personal consumption growth and slower-than- expected investment growth.
The national statistical office (DZS) on Wednesday released a preliminary estimate showing that GDP in the last quarter of 2017 rose 2% from the same period of the year before. The fourth quarter of 2017 was the 14th consecutive quarter to see GDP grow, albeit at a slower rate than in Q3, when the economy grew by 3.3%. The Q4 2017 GDP growth rate is also the lowest growth rate since Q2 2015, when the growth rate was 1.9%.
Eight economic analysts polled by Hina had predicted an average annual GDP growth rate of 2.7%, with their estimates ranging from 2.1% to 3.2%.
In 2017, the national economy grew by 2.8%, less than in 2016, when the growth rate was 3.2%, and less than expected. Eight economic analysts polled by Hina three months ago expected GDP to grow by 3% on average.
The European Commission said recently that Croatia’s economy was expected to grow by 3.2% in 2017, while the Croatian National Bank (HNB) expected a growth rate of 3.1%. The government defined the 2017 budget based on a growth estimate of 3.2%.
“We expected the growth rate in Q4 2017 to be 3%, so 2% is disappointing,” said Alen Kovač, an analyst at Erste Bank. Speaking about the structure of GDP, Kovač said that the mild slowdown in personal consumption growth had been expected but that the slowdown in investment growth was more significant than expected.
In Q4 household spending grew 3.4% on the year while in the previous quarter it grew 3.7%. Investment growth slowed down even more, to 1.7% on the year, while in the previous quarter it was 3.4%.
“The reason for this is definitely a slower dynamic of investments and more unfavourable net exports, notably due to a stronger import dynamic, which has eventually resulted in the lower growth rate,” said Kovač. The export of goods and services grew in Q4 by 3.6% on the year while the import of goods and services grew by 6%. “The growth of exports was as expected,” said Kovač, but noted that imports grew slightly more than expected, with imports of services going up 16% on the year.
Tajana Štriga of the market research agency Signalitics believes that the Q4 growth slowdown is temporary. “We expect a solid GDP growth in 2018… considering the HNB’s expansionary monetary policy, recovery of lending and low inflationary pressures that increase citizens’ available income,” said Štriga.
She noted that investment growth would be supported by a stronger inflow of money from EU funds, last year’s high corporate revenues, and expected investments in tourism worth 940 million euro, which is a 15% increase compared to the investment estimate in 2017.
Štriga said that she did not expect the restructuring of the heavily indebted Agrokor conglomerate to have a stronger negative impact in the short term, while in the long run she believes that it could reflect positively on the national economy through greater competitiveness and easier access to sources of financing for other market players.
Kovač said that he expected the economy to grow by 2.8% in 2018 but that it was possible that he would lower the estimate.
According to seasonally adjusted data, Croatia’s GDP in Q4 grew 0.1% from the previous quarter, while compared to Q4 2016 it grew 2.2%.
The national economy thus grew at a slower rate compared to the EU average, which in Q4 2017 was 0.6%. It also grew more slowly on the year as the average GDP growth in the EU was 2.6%.
DZS head Marko Krištof said today that growth rates in Q4 2017 dropped the most in agriculture (-5% year-on-year), primarily due to last year’s drought, and in the industrial sector, which together with mining and energy saw a drop of 0.2%, he said.
Krištof explained that the structure of the economy in Q4 was significantly different from its structure in other periods of the year, namely the share of industries in the overall GDP was higher as the volume of seasonal activities was smaller, which in the case of a smaller volume of industrial activity meant its greater impact on the overall GDP.
Industrial production in the last two months of 2017 dropped. The decline for two consecutive months was not recorded since mid-2104. That is why industrial output in Q4 2017 stagnated on the year while in the previous quarter it grew 2.9%. The lower industrial output was due to a lower output in the metal industry, primarily shipbuilding and metal construction, as well as in the furniture industry.
“We have very stable rates of growth and consumption, salaries and employment but the impact of tourism is really big. In Q4, when there is no tourism, as soon as several sectors record lower outputs, that affects overall growth rates,” said Krištof.
The biggest positive contribution to GDP growth in Q4 2017 was made by growing household consumption. The contribution of domestic demand was positive while the contribution of foreign demand was negative.
