However, there is a warning.
The European Bank for Reconstruction and Development (EBRD) has increased its estimate of Croatia's economic growth this year, but warned that short-term and medium-term prospects could be adversely affected by financial problems in Agrokor and the over-indebtedness of companies in general, reports Poslovni.hr on May 10, 2017.
The Croatian economy, according to the new estimates, should grow this year by 2.9 percent, at the same pace as in 2016. The EBRD has raised its November estimate by 0.9 percentage points. In 2018, the growth should slow down slightly to 2.6 percent, estimated the EBRD.
They noted that Croatia's economic growth accelerated last year in relation to the 1.6 percent recorded in 2015 thanks to a good tourist season, strong external demand and lower average oil prices. “The pace of the growth could remain at 2.9 percent in 2017, while for 2018 we expect a slight slowdown, to 2.6 percent, partly due to the effect of the higher reference value,” the EBRD explained.
It estimated that "the main engine of growth will be domestic demand, supported by reduced tax burden, strong income from tourism and the falling unemployment rate, investments that will be larger due to favourable financing conditions, lower rates of profit tax, and the expected improvement of absorption capacity of EU funds.” The contribution of net exports is unlikely to be significant due to higher imports associated with higher domestic demand.
The short-term prospects of the Croatian economy could be adversely affected by the spill-over of financial problems from Agrokor's subsidiaries and suppliers. In the medium term, however, prospects continue to weaken due to the long-term structural weakness, with the EBRD being particularly worried about the high level of debts of companies.
“The recent case of Agrokor, the largest privately-owned company in Croatia, whose debt is close to 15 percent of the GDP, demonstrates all the possible effects of the spill-over of problems and has prompted the governments of Croatia and Slovenia to take specific measures to ensure controlled restructuring,” says the report.
For the region of Central Europe and the Baltic countries, to which Croatia belongs, the EBRD forecasts a growth of 3.1 percent in both this and next year. The strongest growth this year, according to bank estimates, should be recorded by Poland and Slovakia (3.2 percent), followed by Latvia (3.1 percent) and Hungary (3.0 percent).
“It is expected that growth in Central Europe and the Baltic states will be slightly accelerated in 2017, and will again be about three percent, after a slight slowdown in 2016 associated with weaker investments.”
