European Commission Increases GDP Growth Forecast for Croatia

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Despite the increased forecast, Croatia will have to wait until 2019 for the GDP to return to the pre-crisis level.

The European Commission forecasts that the Croatian economy will grow this year more than previously expected, but there are still risks associated with the restructuring of Agrokor. The Commission’s autumn forecasts published today in Brussels are similar to those released earlier by the Croatian government, reports Jutarnji List on November 9, 2017.

The European Commission assesses that this year the Croatian economy will grow by 3.2 percent, 2.8 percent next year, and 2.7 percent in 2019. These are higher growth rates than those published by the Commission in the spring when it predicted that the GDP would grow by 2.9 percent this year and 2.6 percent next year.

Despite this growth, the Commission states in its report that the Croatian GDP would return to the level before the crisis in two years. “Growth should remain strong and broad-based this year. However, it is expected that the rhythm of economic activities will decline somewhat in the next two years, and GDP will not return to the pre-crisis level before 2019. Potentially negative impact on the ongoing restructuring of Agrokor is still a threat. The unemployment rate will continue to decline, albeit at a slower pace since employment and emigration rate will slow down. The deficit should remain stable, but the structural balance could worsen,” said the European Commission.

The Commission estimates that the budget deficit this year and next year will be 0.9 percent of GDP, while in 2019 it will be 0.7 percent of GDP. It also expects a continued decline in public debt, which should amount to 80.3 percent of GDP this year, 77.4 percent next year, and 74 percent in 2019.

In its report, the European Commission points out that growth in the first half of this year remained “surprisingly strong,” and that the impact of the restructuring process in Agrokor, the largest private employer, was smaller than expected. “The risks in these forecasts are mainly related to Agrokor’s restructuring, which is underway. Agrokor’s creditors could face difficulties after expected write-offs. The period of unpredictability could be extended if some creditors decide to oppose the outcome of the settlement, which should be reached by mid-2018,” said the Commission.

Domestic demand remains the primary driver of growth. “While the effects of recent tax reforms pale, household consumption is expected to remain strong thanks to job growth, wage increases and favourable credit conditions. Investments will remain the most dynamic domestic component, with public investment supported by withdrawals from European structural funds,” the Commission added.

The Commission expects an export recovery in the second half of this year, after somewhat weaker results in the second quarter, thanks to high external demand and further integration into EU markets.

The unemployment rate in Croatia will this year be 11.1 percent, falling to 9.2 in 2018, and 7.5 percent in 2019, which should be somewhere near EU average.

According to the forecast, GDP growth in the European Union will be 2.3 percent this year, and 1.9 percent next year. The highest growth this year will be achieved by Romania with 5.7 percent, followed by Malta with 5.6 percent, Ireland 4.8 percent and Slovenia 4.7 percent. The lowest growth will be recorded by Italy and the United Kingdom with only 1.5 percent.

Translated from Jutarnji List.


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