Erste Bank Increases Estimate of Croatia’s GDP Growth

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The bank increased its estimate of this year’s growth from 2.2 to 2.7 percent.

Erste Bank has revised its assessment of this year’s growth rate of the Croatian economy from 2.2 to 2.7 percent, thanks to the continuation of positive economic trends in the second half of the year, reports on November 18, 2016.

“The second half of the year should bring a continuation of good economic trends, with the further positive influence of tourism on these favourable trends. Therefore, we have revised our growth forecast for 2016 from the previous 2.2 percent to 2.7 percent”, said Alen Kovač, a macroeconomist at Erste Bank.

In 2017, they expect the growth to keep a similar pace, still mainly supported by domestic demand, while net exports should have a marginally negative effect on growth.

Among other findings, Kovač pointed out that, after a stronger consolidation effort in 2015, thanks to which the deficit was reduced by 2.1 percentage points to 3.3 percent of GDP, fiscal trends remained positive in 2016 as well, and that the budget deficit in the first half of the year amounted to 0.2 percent of GDP, which was by 1.5 percentage points lower than the year before.

This points to the continuation of fiscal consolidation and the reduction of deficit below the level of 2 percent of GDP in 2016, said Kovač, who added that this laid the foundation for positive news from the rating agencies in 2017. “The new government has announced tax reform in 2017, in order to strengthen economic growth, aiming at the reduction of income and corporate taxes, which should result in the reduction of the budget revenues by 0.6 to 0.7 percent. The target budget deficit for 2017 is expected at levels of about 2 percent of GDP, while public debt is expected to continue with the downward trend and fall below the level of 85 percent of GDP”, said Kovač.

Financial needs in 2017 will amount to approximately 21 percent of GDP, while the repayments schedule suggests that the Ministry of Finance will try to access the international market early next year. “The improved macroeconomic environment speaks in favour of such a scenario, and the successful placement of bonds on the international market, given the fact that the rest of the repayments during the year are concentrated in the domestic market, would significantly reduce the risks for financing in 2017”, concluded Kovač.


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