Erste Bank Increases GDP Growth Estimate

Total Croatia News

Another increase in the GDP growth estimate.

Erste Bank on Friday revised upwards its estimate of this year’s growth of the Croatian economy, from the original 1.8 percent to 2.2 percent, mainly due to improved expectations for domestic demand levels, reports on August 27, 2016.

As outlined by the Erste Bank chief macroeconomist Alen Kovač, economic growth accelerated in 2016 and GDP grew by 2.7 percent year-on-year in the first quarter, helped by continuing recovery in domestic demand. Looking at short-term indicators, he explains that the second quarter should bring similar dynamics, with further support of domestic and foreign demand.

He expects that the same drivers of growth will continue in the second half of the year as well, with domestic demand retaining its leading role. At the level of the whole year, he expects growth in private consumption of 2.5 percent, after 1.2 percent last year. “While the current political uncertainty could somewhat hamper investment activity due to weaker absorptions of EU funds, we still expect that private consumption will continue to be underpinned by better fundamental factors”, says Kovač.

He adds that the latest available data point to a solid execution of the 2016 state budget, with budget deficit lower by 1.5 percentage points of GDP on an annual basis, which is supported by stronger GDP growth than expected and discipline on the spending side of the budget.

“Therefore, we have lowered our forecast of 2016 budget deficit towards 2 percent of GDP. The situation on the revenue side of the budget also remains favourable, while bond yields remain stable due to favourable global factors, stronger GDP growth and continued fiscal consolidation, which represent a counterweight to the growing political risk”, concludes Kovač.

The bank expects that the public debt to GDP ratio will remain at 86.7 percent of GDP, just like the previous year.


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