Business

Economists Expect a 2.8 Percent GDP Rise in 2018

By 19 December 2017

Economists from six large Croatian banks expect an average growth of gross domestic product (GDP) of 2.8 percent in 2018, with estimates ranging from 2.3 to 3 percent, as shown in a poll published by the Croatian Bank Union (HUB) on Tuesday.

The poll shows that economic growth in 2017, once the final data is published, will probably be above 3 percent. For their newest estimates for 2018, which are somewhat lower than 2017, polled economists mostly cite two reasons. Firstly, final solutions in Agrokor will mean the restructuring of operations in and around Agrokor, which is very positive in the long term, but in the short term could mean more layoffs than there were this year, Poslovni Dnevnik reported on December 19, 2017.

Secondly, as the growth of personal spending this year can be attributed to tax reform, the initial effect of which has worn out, personal spending will continue in a normal, long term sustainable tempo, slower than 3.5 percent annually. Economists rate the growth of personal spending in the coming year to be at 2.7 percent, while this year it will be at 3 percent.

The poll also showed that economists expect a significant contribution to GDP growth from investment growth in 2018, estimated at 6 percent, but also a very small contribution from state spending growth, of 1.6 percent. They also estimate further significant contribution of exports, of 5.7 percent, but on the other hand it will cancel out the faster recovery of import, at 7 percent.

Aside from the aforementioned, bank economists also expect a somewhat higher state deficit than the government does – their average is 0.8 percent of GDP, while the government plans 0.5 percent. Public debt will continue to fall, but at a slower rate than in the past years, and it is expected to reach 77.9 percent of GDP by the end of 2018.

Despite the expected growth of salaries, unemployment is expected to go down to 10.7 percent, with inflation slightly rising when compared to the current year, to 1.5 percent. Financially speaking, the expectations of economists can be described as “absolute stability.” Short and long term interest rates and foreign currency course will remain as predicted.

Yield to the key ten-year state bond in mid-2018 is expected at the level close to the current 2.5 percent, but by the end of the year, it is expected to rise slightly, to 2.65 percent. In terms of the domestic market, chief economists don't expect significant changes in the monetary policy. On the contrary, they point out the continuation of the unaltered ambience of plentiful and easily available liquidity, favouring lower interest rates.

The poll also shows economists do not consider unresolved structural issues and policies to be obstacles to growth in the coming year.

“However, if asking why tax reform is not moving forward, the answer is the unresolved level and structure of the spending side of the budget. In that sense, unresolved structural issues and policies truly do limit faster growth,” states the HUB report.

The economists cited institutional reforms, restructuring and the privatisation of state companies, the labour market and the education system, as well as poor integration into the EU economy (especially industrial value chains) and an unfavourable level and structure of direct foreign investments as obstacles to growth.

Translated from Poslovni Dnevnik.

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