ZAGREB, February 25, 2018 – A majority of macroeconomic analysts surveyed by Hina predict that Croatia’s economy in the last quarter of 2017 grew less than 3% annually due to slower personal consumption and export growth as well as stable industrial production.
Next week, the national statistical office (DZS) will publish the first estimate of GDP in Q4 2017. Eight analysts polled by Hina predict the economy grew 2.7% from Q4 2016 on average, their estimates ranging from 2.1 to 3.2%.
The last quarter of 2017 will be the 14th in a row in which GDP rose but less than in the previous quarter, when annual GDP growth was 3.3%.
The analysts say economic growth remains backed mainly by stronger personal consumption, the biggest component of GDP. Stronger personal consumption is reflected in higher retail trade, increasing annually for 40 months in a row. In Q4 2017, annual real retail growth slowed down to 3.4% from 5.5% in Q3 2017, despite a two-digit rise in foreign tourist overnights, which indicates a slower growth of private consumption, one of the analysts says.
Although the influence of tourism weakened in Q4 2017, consumption continued to grow thanks to the tax changes which resulted in higher salaries. According to the DZS, the average net pay in December 2017 amounted to 5,973 kuna, which was nominally higher by 2.3%.
On the other hand, the slower growth of retail in the last months of 2017 was due to the fact that car purchases were postponed for this year owing to announcements of lower excise taxes.
Export growth had a positive effect on the economy last year, mainly thanks to a growth in the economy of the European Union, Croatia’s main trade partner. The export of commodities in Q4 2017 went up 7.4% annually, while the annual growth in Q4 2016 was 12.6%, one of the analysts says. The export of commodities supported GDP growth throughout 2017, rising 12% annually to 103.9 billion kuna. DZS data show that imports went up 8.6% to 161 billion kuna, increasing the foreign trade deficit by 3% annually.
The slower economic growth was also due to the weakness of industrial production, which fell in the last two months of 2017. A fall in industrial production over two consecutive months had not been recorded since mid-2014. As a result, industrial production in Q4 2017 was stable annually, whereas in Q3 it had grown 2.9%.
Lower retail trade and industrial production in Q4 2017 was due to a slowing down after a record tourism season, higher bases from 2016 and the crisis in the Agrokor conglomerate, which is felt in somewhat milder production and investment growth, one of the analysts says.
Whereas production was stable, analysts predict investments in Q4 2017 rose for the tenth quarter in a row, albeit less than in Q3, when gross investments in fixed capital went up 3.4% annually.
If the analysts’ average forecast of a 2.7% growth in Q4 2017 proves to be true, it will mean that annual growth in 2017 was 2.9%, as against 3.2% in 2016. This would be less than expected, as three months ago the eight analysts polled by Hina forecast a GDP growth of 3% on average.
The European Commission recently forecast that Croatia’s GDP growth in 2017 would be 3.2%, the Croatian National Bank predicts it will be 3.1%, while the government drew up the 2017 budget by predicting a 3.2% GDP growth.
The analysts polled by Hina say the crisis in Agrokor, the largest national conglomerate which owes banks and suppliers about 58 billion kuna, has not had a major impact on GDP growth this year. Despite Agrokor, which had influence through investments and demand, 2017 was a good year thanks to strong foreign demand growth, which was reflected in high exports of goods and tourism services, one of the analysts says.
Economic growth is expected to further slow down this year. The eight analysts polled by Hina predict that it could amount to 2.8% on average, their forecasts ranging from 2.3 to 3%. The central bank expects the economy to grow 2.9% this year and the government drew up this year’s budget on the same forecast.
In its winter forecasts, the European Commission predicts that Croatia’s GDP will grow 2.8% this year. The International Monetary Fund expects the same, while the World Bank expects 2.6%.
One of the analysts expects a slowing down of domestic demand and real exports, notably due to the absence of measures that would have a major impact on domestic demand growth such as last year’s income tax changes. We expect steps forward in investment trends, notably through higher EU fund absorption, while dealing with the Agrokor crisis remains the biggest risk, the analyst adds.
