Analysts warn that the budget deficit will rise this year.
The World Bank has held its assessment of the growth of the Croatian economy this year at 2.9 percent, but has increased its forecast for the following years to an average of 2.7 percent, which is a consequence of the growth in personal spending, exports and tourist results, reports Poslovni.hr on October 22, 2017.
The financial institution estimates that the Croatian gross domestic product (GDP) will rise by 2.6 percent in 2018, and by 2.8 percent in 2019, while in its June estimates, it expected the growth to be 2.5 and 2.6 percent respectively.
“Personal spending is expected to remain robust, reflecting fiscal easing, the labour market recovery and increasing consumer confidence,” explained the World Bank report titled “Migration and Mobility”, released last week, with updated economic assessments for countries of Europe and Central Asia.
It also emphasised that the export of goods was key to stimulating growth, with companies being increasingly integrated into the European Union market. Investments will intensify, thanks to the absorption of money from EU funds, particularly with regard to public investment in infrastructure, the report says.
The analysts expect that the fiscal deficit will this year rise to 1.3 percent, due to tax cuts and higher government spending. Thanks to the growth of the economy, the deficit should then fall to an average of 1.0 percent in 2018 and 2019, which would lead to a further gradual decline in public debt to 76.4 percent of GDP in 2019.
Positive developments in the labour market, where the ILO unemployment rate should fall below 10 percent by 2019, will support the growth of disposable income. The recovery of the economy will continue to support unemployment decline, so the World Bank expects the so-called absolute poverty rate to continue to fall and to stand at 4.9 percent in 2019.
The World Bank also says that risks to the economy are moderate. “Although fiscal results are better than expected, new fiscal expansion and uncertainty about domestic policies increase the risks of slowing down the pace of structural reforms and achieving public debt sustainability,” the World Bank report said. It added that additional risks are posed by a still high level of indebtedness of the private sector, problems in Agrokor, and the fact that Croatia needs to refinance a significant part of its debt this and in the next few years.
“The country’s credit rating remains speculative, but the outlook has improved, suggesting that acceleration of consolidation and structural reforms (business environment, regulatory framework) could lead to credit rating improvements,” the World Bank report concluded.
Translated from Poslovni.hr.
