GDP Growth Accelerating, Worries About Agrokor Remain

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Economists forecast a 3% GDP growth in the second quarter

Thanks to the strong growth of personal spending and exports, as well as the continued strengthening of investments, macroeconomists estimate that the growth of the Croatian economy accelerated to 3% at the annual level in the second quarter, reports N1 on August 27, 2017.

The Central Bureau of Statistics will release the initial gross domestic product (GDP) estimate for the second quarter next week, and seven macroeconomists who took part in a poll estimated on average that the economy grew by 3.0 percent compared to the same period last year. Their growth estimates range from 2.8 to 3.4 percent. It will be the 11th quarter in a row of GDP growth, and faster than in the previous quarter when the economy grew 2.5 percent year-on-year.

The macroeconomists say that growth of the economy is mostly thanks to the strengthening of personal consumption, the largest component of GDP. “We expect robust growth in personal consumption, which is based on the growth of retail trade and employment, the decline in unemployment, and the growth of disposable income. In addition to the increase in net wages, disposable income has been increased due to lower cost of re-financing and the inflow of foreign currency on the basis of tourist activities,” says one of the macroeconomists.

The personal consumption growth is indicated by an increase in retail trade turnover on an annual basis for 34 months in a row. In the second quarter, retail sales grew by about 4.7 percent compared to the same period last year, with a 7.8 percent growth in June, the higher growth in the last ten years.

The average monthly paid net wage per person in June was 6,005 kunas, which is nominally 5.6 percent, or 319 kunas, higher than last year. Personal spending is also a consequence of the growth of employment, i.e. falling unemployment. In the last few months, the registered unemployment rate is at 10.8 percent, which is the lowest level since 2000.

The high growth of exports will also strongly influence the GDP growth, and it is mostly a consequence of the growth of the European Union, Croatia’s largest foreign trade partner. According to data, export sales amounted to 49.65 billion kunas in the first six months, which is almost 14 percent more than in the same period last year. “Exports of both commodities and services continued to grow solidly in the second quarter, confirming the better results of Croatian exporters, but also because Croatia is an attractive tourist destination. However, positive effects are reduced by the growth of imports,” says one of the macroeconomists.

Imports in the first half of the year grew by 10 percent compared to the same period last year, to 79.83 billion kunas. Although net exports of goods could provide a negative contribution to growth, the growth of service exports should compensate this, macroeconomists say. This is mostly contributed by the strong growth of tourism. According to data, in the first six months of this year, 20.4 million overnights were realised in commercial accommodation facilities, 23 percent more than in the same period last year.

While consumption and exports are fuelling GDP growth, the positive impact of industrial production will be weaker because its growth has been slowing down. In the first six months of this year, production output grew by only 2.1 percent compared to the same period last year. This represents a significant slowdown, given that last year industrial production jumped by 5 percent. “Industrial production and export activity continues to grow, but with a somewhat lower impact on GDP dynamics,” says one of the macroeconomists.

Until three months ago, most macroeconomists expected growth of the economy this year to be higher than 3 percent. But, after the outbreak of the crisis in Agrokor, and after it was announced that the first quarter GDP growth was 2.5 percent, lower than expected, many have reduced their estimates for the whole year. According to the latest poll, seven macroeconomists estimated on average that the growth of the economy in 2017 could amount to 2.9 percent, while three months ago they expected 3.1 percent.

Macroeconomists say the crisis in Agrokor, the largest Croatian corporation which is in debts to banks and suppliers by about 40 billion kunas, will affect the GDP growth this year. But, they point out that the impact of restructuring Agrokor, whose sales account for about 15 percent of GDP and which has business connections with nearly 2,000 companies, it is hard to estimate for the entire economy due to the lack of reliable data.

However, macroeconomists also believe there are a number of positive factors that will mitigate the negative impact of Agrokor, such as the expected record tourist season, commodity export growth, stronger EU funding and direct foreign investments.

The European Commission reacted to the Agrokor problems and cut the estimate of Croatia’s GDP growth this year from the previous 3.1 percent to 2.9 percent. The Croatian National Bank (HNB) estimates that this year’s GDP growth will be around 3 percent. And most Croatian macroeconomists expect the growth of about 3 percent.

“Our current estimate is that the growth in 2017 will be around 2.9 percent, and we are currently seeing positive risks that this growth could be somewhat above 3 percent, given that the tourist season in the third quarter is clearly breaking all the records. Growth in the EU is stable and beneficial for our commodity exports,” says one of the macroeconomists.

The government based this year’s budget on the 3.2 percent GDP growth rate.

Translated from N1.


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