The unexpected fall of industrial production in March brings into doubt GDP growth forecasts for this year.
Although economists expected March to bring a positive result, the industrial output fell by 1.7 percent compared to the same month last year, which is the fourth decline in the last five months. The figures published by the Central Bureau of Statistics (DZS) show that annual growth was achieved only in February, reports Jutarnji List on May 1, 2018.
In the first quarter of this year, the industrial output almost stagnated when compared to the same period last year; the growth was only 0.3 percent, while in 2017 it was 1.9 percent. For Zdeslav Šantić, an analyst with Splitska Banka, the fall was a negative surprise given the expectations that Easter holidays and the beginning of the tourism season would have a positive impact on industrial production.
However, these incentives did not seem to help some sectors. A sharp decline was recorded in the production of petroleum products (35 percent), in the shipbuilding industry (28 percent), chemical industry (14.8 percent), and electronics (29 percent). Problems in companies such as Uljanik, Petrokemija and oil refineries have apparently pulled the industry down.
“While small and medium-sized businesses in the private sector have managed to restructure during the crisis years, some state-owned companies, including Petrokemija and shipyards, which have now been left without state aid, have failed to do so, and that will weight down the industrial production in the coming years,” said Šantić.
He added that it was apparent that positive factors, which have previously resulted in substantial growth of industrial production, have dissipated. These include the effects of entering the EU and increasing competitiveness after production costs fell through internal devaluation.
Bearing in mind that industrial production is an important indicator of GDP growth trends, the beginning of the year is not promising. Splitska Banka expects that industrial output will grow at a rate of 1 percent this year, while GDP will grow 2.4 percent, mainly due to the continued growth in personal consumption. While the government hopes GDP will grow at the rate of 2.8 percent this year, analysts from banks have more modest expectations.
“Quarterly data support our expectations of an economic slowdown,” said Zrinka Živković Matijević, an analyst with RBA Bank, who expects GDP growth of 2.3 percent. Another successful tourist season will support an increase in disposable income, but will also lead to continued growth in imports, reducing the positive effects of exports, explained Živković Matijević. As for the growth of investments, she says that the problem could be “the lack of administrative capacity to withdraw money from EU funds.” According to the European Commission's estimates, 80 percent of public investments should be funded from the European funds.
However, analysts still believe that it is possible for GDP to grow faster than expected this year, “especially if Croatia has another record-breaking tourist season, which would bring a more robust growth of services export and stronger personal consumption than anticipated.” Still, permanent problems are a high dependency on imports and the weakness and volatility of the investments.
Data on industry output decline is just another reminder about the importance of broad reforms which have to be implemented if the government wants to increase employment and the standard of living substantially.
Translated from Jutarnji List (reported by Marina Klepo).
