ZAGREB, June 5, 2019 - The World Bank says in its latest report that Croatia's economy is likely to slow down in 2019 and 2020, warning that emerging economies in Europe and Central Asia are especially exposed to the risk of a slowdown of the activities in the euro area.

Croatia's economic activity is likely to grow at a rate at 2.5% in 2019 and 2020, according to the World Bank's Economic Prospects. Thus, Croatia's growth in 2019 and 2020 is expected to decelerate by 0.3 percentage points in comparison to the bank's report issued in January.

The initial prospects of a 2.6% rise in Croatia's economic activity in 2021 have also been revised down by 0.2 percentage points to 2.4%. "Growth in Europe and Central Asia is estimated to have slowed to 1.6% in 2019, a four-year low, partly reflecting a sharp weakening of activity in Turkey.

"Trade continues to weaken across the region, as goods trade volumes have slowed in parallel with sluggish activity in the Euro Area, the region's largest export destination," reads the report, headlined "Heightened Tensions, Subdued Investment".

The WB says that the region's outlook remains subject to significant downside risks. It also notes that "countries with large current account deficit, heavy reliance on capital inflows, or sizeable foreign-currency denominated debt – Belarus, Croatia, Georgia, the Kyrgyz Republic, Moldova, Tajikistan and Ukraine – could be subject to sudden shifts in investor sentiment. Increases in policy uncertainty could undermine business and investor confidence in the region."

"Policy disagreements between some Central European countries and the European Union, election outcomes, an escalation of international trade restrictions, and backpedalling on structural reforms could also unsettle business and investor confidence. A substantial increase in private-sector debt in the region also raises the possibility of significant contingent liabilities for the public sector."

The World Bank has also revised down forecasts for the global economy in 2019, by 0.3 percentage points, to 2.6%.

In 2020, the global economy is expected to grow at a rate of 2.7%, which is slightly lower than the January forecast. A 2.8% forecast for 2021 has been confirmed.

The Global Economic Prospects (GEP) is a twice-yearly World Bank Group flagship report that examines global economic trends and how they affect developing countries.

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ZAGREB, May 29, 2019 - An accelerated GDP growth in Q1 of 3.9% puts Croatia among those EU member states with the most dynamic economic growth, which is important for the further strengthening of Croatia's economy, competitiveness and investor confidence, the government said in a press release on Wednesday.

The preliminary estimate of the national statistical office (DZS) shows that Croatia's GDP in Q1 grew 3.9% from the same period last year.

That is the 19th consecutive quarter to see GDP grow and faster than in the previous quarter when the economy grew by 2.3% on the year. The increase of 3.9% is the highest since Q4 2016 when it increased at a rate of 4.0%. This achievement is much better than expected as the real growth rate of 3.9% is significantly higher than the 2.5% growth in Q1 2018, the government underlines.

"After exiting the Excessive Deficit Procedure (EDP), accomplishing a budget surplus two years in a row and returning to an investment credit level (Standard & Poor's), an accelerated economic growth in the first quarter of 3.9% puts Croatia among those EU member states with the strongest economic growth in the first quarter, which is important for the further strengthening of Croatia's economy, competitiveness and investor sentiment.

The government perceives this as encouragement to continue to work committed to the triangle of success that comprises fiscal consolidation, structural reforms and investments, which has resulted in an increased income for the population and tax relief for the economy, thus being conducive to strengthening economic growth," Prime Minister Andrej Plenković is quoted as saying.

The press release from Government House underscored that the export of commodities and services has also significantly contributed to the dynamic GDP growth because last year a real decrease of 0.5% was recorded in Q1 while this year in Q1 it increased by 4.6%.

A growth of 7.5% was generated with regard to exports to EU member states and a dynamic growth of commodity exports was recorded toward CEFTA and EFTA countries and to individual countries including Japan and the USA which resulted in a significant increase in commodity exports of about 9%, the government underscored.

The government added that domestic demand continued its growth which too, exceeded expectations.

The most important contributors to the growth of personal consumption are the rise in net salaries with growth of 3.6% in the nominal terms and 3.1% in the real terms, further positive trends on the labour market (number of pension insurance beneficiaries in Q1 increased by 2.2%), a stronger recovery of credit activities by commercial banks, a VAT reduction on certain food and non-food products and the continuing growth of investment activities.

The government stressed that the contribution of industry on the dynamics of GDP growth.

An increase of 2.7% in industrial production according to the working day adjusted index in Q1, is significantly higher on the year as against Q1 2018 when it grew by 0.3%.

The Q1 growth is on the back of household consumption of 4.4% on the year, as against 3.9% in the previous quarter.

Gross fixed capital formation jumped by 11.5% on the year, while in Q4 2018 it rose 6.1%.

More news about GDP growth in Croatia can be found in the Business section.

ZAGREB, May 29, 2019 - In the first three months of this year, the Croatian economy grew 3.9% on the year, which is a record high growth since late 2007.

The national statistical office (DZS) on Wednesday released its preliminary estimate under which GDP in Q1 grew 3.9% from the same period last year, and household consumption and investments are perceived as the biggest contributors to this high rise.

Q1 2019 was the 19th consecutive quarter to see GDP grow and faster than in the previous quarter, when the economy grew 2.3% on the year.

The Q1 growth is on the back of household consumption of 4.4% on the year, as against 3.9% in the previous quarter. State consumption increased to 3.1% from 2.3% in the previous quarter.

Gross fixed capital formation jumped by 11.5% on the year, while in Q4 2018 it rose 6.1%. The export of goods and services increased 4.6% in Q1 2019 on the year, whereas imports went up 7.7%.

According to seasonally adjusted data, GDP in the first quarter of 2019 grew 1.8% from the previous quarter, while in relation to the first quarter of 2018 it grew 3.9%.

This rise is higher than the average growth in the European Union (1.5% year on year and 0.5% quarter on quarter).

Economy Minister Darko Horvat said on Wednesday, commenting on the 3.9% annual GDP growth in Q1, that Croatia's economy was on the right track and that it would be good if this rate was a stage towards the desired growth of 5%.

Responding to questions from the press, he said neither he nor the other ministers were content with a 2.5% growth. "If this number that's happening is a passing or interim phase to the 5% economic growth I desire, then we're on the right track," he said, adding that "this is slowly going towards 5%".

GDP in Q1 grew 3.9% from the same period last year, and household consumption and investments were perceived as the biggest contributors to the fastest rise since the end of 2007.

The Croatian Chamber of Commerce (HGK) said the Q1 growth was markedly higher than expected thanks to a relatively dynamic growth of commodity exports and an unexpectedly high growth of domestic demand.

Given that the European Commission's spring forecast predicts a 2.6% growth for Croatia this year, the same as in 2018, the growth reported by the national statistical office in its first forecasts for Q1 is markedly higher than expected.

More news about economic growth can be found in the Business section.

ZAGREB, May 8, 2019 - Prime Minister Andrej Plenković on Tuesday commented on the European Commission's Spring Economic Forecast released in Brussels earlier in the day and strongly defended his government's pension reform.

The European Commission revised down its growth forecast for the Croatian economy for this year from 2.7% to 2.6%, underscoring that GDP will have finally surpassed the pre-crisis level this year. The Commission predicts that economic growth will continue to slow down to 2.5% in 2020.

"I haven't seen the document but I have heard that it is in line with our estimates and the estimates of other financial institutions. I want to underline that our growth is healthy, it is not based on borrowing and is happening as we witness a decline in public debt and two consecutive budget surpluses," he said.

He said that the Croatian public considered this normal, which was not the case. "The last time we had this was in 1998 when we introduced VAT... In the past two and a half years and three rounds of tax reform we have reduced the tax burden on businesses and citizens by 6.5 billion kuna, we have eliminated administrative obstacles in the amount of two billion kuna, so we are facilitating business while achieving a surplus and paying the previous governments' guarantees for the shipbuilding industry," said the prime minister.

He underscored that Croatia had to implement structural reforms such as the pension system reform. The pension reform has three goals – making pensions higher, making them the same for people who work the same number of years and have the same job, and making the system sustainable, Plenković said.

He stressed that raising the retirement age to 67 was not "Minister Marko Pavić or Andrej Plenković's invention but one by the SDP government."

"We have to see if we want changes for the better. Everyone calls for reforms, yet when a reform is launched that is in the interest of current and future pensions, there is a campaign to undermine it."

"That's okay, but then we have to ask ourselves what we want. I'm open to discussion, this reform was worked on with a lot of understanding about what we can do as a state," Plenković said, adding that there was a lot of populism in discussions about the reform, which he attributed to the ongoing campaign for EU elections.

He added that the pension reform had helped the country overcome excessive macroeconomic imbalances and improve its credit rating.

More news about Croatian economy can be found in the Business section.

ZAGREB, May 7, 2019 - The European Commission on Tuesday revised down its GDP growth forecast for the Croatian economy for this year from 2.7% to 2.6%, underscoring that GDP will have finally surpassed the pre-crisis level this year.

"Croatia’s economy is expected to continue growing at a moderate pace over the forecast horizon. Household consumption remains strong as disposable incomes continue to benefit from steady growth of employment and wages, in an environment of low inflation. Participation rates are projected to keep increasing gradually as more jobs are being created. Continued growth in tax revenue and contained spending growth are expected to maintain the government balance in a mild surplus and the debt ratio on a steady declining path," the EC said in its Spring Economic Forecast released in Brussels on Tuesday.

The Commission predicts that economic growth will continue to slow down to 2.5% in 2020. In its previous Interim Winter Economic Forecast in February, the Commission projected Croatia's GDP growth at 2.7% in 2019 and 2.6% in 2020.

Following last year's budget surplus of 0.2% of GDP, the EC now estimates that this year's surplus could be 0.1% of GDP and 0.5% in 2020. At the same time the share of public debt in GDP could be reduced from last year's 74.6% to 70.9% in 2019 and to 67.6% in 2020.

Economic growth in the fourth quarter of 2018 was disappointing at a mere 0.1% compared to Q3 which led to a lower annual economic growth than had been expected, which in 2018 was 2.6%, the EC underscored. The slowdown in Q4 owed to the negative contribution of net exports, as goods exports declined in the last quarter while growth of imports accelerated. On the other hand, household consumption remained strong and investment picked up, most notably in the public sector through EU funding.

At the start of 2019, good exports appear to have rebounded, while sales in the retail sector posted some of the highest monthly growth rates in recent years. At the same time, growth of manufacturing output remained volatile and imports kept expanding buoyantly, the report notes.

According to the EC, growth in 2019 and 2020 will be driven by private consumption supported by the positive labour market outlook. Low inflation and steadily increasing tourist receipts and remittances are also likely to support real disposable incomes.

Financing conditions and business expectations remain supportive of private investment, but the main push to capital formation is expected from the public sector, as shown by the pick-up in capital transfers from EU funding at the end of 2018.

Demand for Croatian exports appears to be weakening in line with the projected economic slowdown in the EU. Growth of goods exports is expected to stabilise above the low rate observed in 2018 but significantly below the high rates observed in preceding years, to 3.2%.

Growth of tourism, which represents the main component of export of services, is also expected to remain robust but also at rates below those recorded in past years. It would increasingly rely on stronger per-capita spending while increases in the numbers of overnight stays and arrivals appear to be slowing.

Inflation has been curbed by VAT cuts.

The EC forecast notes that despite the high unemployment, labour shortages in some sectors are becoming more apparent. As the labour market tightens, employment growth should moderate - after last year's rate of 2.4%, the EC expects employment to grow by 1.6% in 2019 and by 1.3% in 2020.

Nevertheless, the EC says both the number of unemployed and the unemployment rate are expected to reach their historic lows by 2020. The EC estimates that this year's unemployment rate should fall to 7.8% compared to 8.5% in 2018 and continue to fall in 2020 to 6.9%.

Real wage growth is expected to strengthen, underpinned by strong labour demand, public sector salary increases and an increase in the minimum wage in 2019.

At the start of 2019, headline inflation was kept subdued by decreasing prices of unprocessed food, mostly due to the significant reduction in the applicable VAT rates. The EC estimates that inflation could be 1% this year, down from 1.6% in 2018 and that it would accelerate in 2020 to 1.2% despite the reduction in the general VAT rate by 1 percentage point at the beginning of the year.

A possible further slowdown in external demand poses a downside risk to the forecast period. At the same time, stronger than expected transfers from EU funds could further boost domestic demand, the EC said.

More news about Croatia’s GDP growth can be found in the Business section.

ZAGREB, April 10, 2019 - Croatia's economic growth will slow down mildly in 2019 and 2020, the International Monetary Fund (IMF) said in its spring forecast confirming Croatia's GDP growth forecast however, it significantly changed its forecast of unemployment.

Croatia's economy this year is expected to increase by 2.6%, which was also forecast in the IMF's World Economic Outlook last autumn. According to its forecast for 2020, Croatia's growth will decelerate slightly to 2.5%.

IMF's forecast to 2018 however has been downgraded by 0.1 percentage points to 2.7%, with Croatia recording four years of growth in a row.

IMF significantly upgraded its forecast of Croatia's unemployment, noting that in 2018 unemployment decreased to 10% from 12.4% in 2017.

Unemployment is expected to continue to fall to 9% this year, reducing the autumn projection by 2.2 percentage points. That would mean that it would remain above the average eurozone forecast of 8%.

The IMF expects Croatia's unemployment rate to continue falling in 2020 by one percentage point to 8%. That would mean that it would be somewhat higher than the 7.7% forecast for the eurozone and above the 6.9% projected for the group of developed European economies.

The inflation rate for 2018 was mildly decelerated by 0.1 percentage point compared to the autumn outlook to 1.5% whereas for 2019 consumer prices are projected to rise at that same rate as projected in the autumn outlook.

In 2020, inflation is expected to be somewhat higher at 1.6% similar to the outlook for developed European economies and the eurozone with the exception of Slovenia.

The latest forecast of Croatia's current account balance surplus for 2018 is slightly higher (0.2 pp) to 2.9% of GDP. The forecast of the current account balance surplus for 2019 however is 2.2 pp less to 2.1% of GDP.

The surplus is expected to continue sliding in 2020 to 1.6% of GDP.

More news about Croatia’s economic growth can be found in the Business section.

ZAGREB, February 28, 2019 - Finance Minister Zdravko Marić said on Wednesday the government had anticipated the slowing down of economic growth in the last quarter of 2018, adding that industrial production and high imports gave cause for concern, while the growth of consumption and investment reflected good economic sentiment.

Speaking to Hina, Marić said the government had expected the slowing down of economic growth in Q4 to 2.3%, as had the central bank and leading analysts given the available analyses of macroeconomic indicators, notably industrial production and net exports. "The total growth in 2018 of 2.6% is in line with our expectations," he said, recalling that the last government projection was that the economy would grow 2.7% last year.

Marić said the 2.5% annual decline in the manufacturing industry and the 1.3% rise in exports in Q4, slower than in the previous quarters, were cause for concern. He said "that's not just due to shipbuilding... but other industries and the export of commodities."

He said the dependence on imports remained high. In Q4 2018, they went up 6.6%, with the import of commodities rising 9% and the import of services falling by 2.8%. "We have to do everything in our power to additionally boost the domestic economy so it can perform better and reduce its dependence on imports."

As for the good indicators, Marić said personal consumption went up 3.9% on the year thanks to the positive sentiment among citizens and in the economy. He said the latest tax cuts had managed to increase citizens' disposable income, resulting in higher consumption.

GDP was also supported by a 6.1% rise in investments, which points to good economic sentiment thanks to tax cuts and better absorption of European Union funds, he said, adding that both the private and public sectors had done their share.

"The total real annual growth rate in 2018 of 2.6% is mildly higher than the potential growth rate, which is not satisfactory in the middle term. We should all strive for higher growth rates which will contribute to sustainable growth, which the European Commission too highlighted today in its European semester report."

The Commission said Croatia was no longer recording excessive economic balances but economic imbalances. "We expected to come out of the group of countries with excessive imbalances because we are working on reducing and eliminating them," said Marić.

The Commission too says domestic demand is the main economic growth driver in Croatia but that there are certain challenges to be dealt with, first and foremost domestic production, he said. On the other hand, one should take into account the neighbourhood as some countries, primarily Italy, do not have the best economic results, yet are major trade partners to Croatia, he added.

Those are objective circumstances one should consider and the Commission too concludes that it is necessary to improve the domestic business climate and conditions for doing business so that the economic growth rate could be higher, Marić said.

"I'm glad this report too concludes that we are pursuing a sensible fiscal policy, which means that it acknowledges everything the government has been doing for three years in a row to reduce the public debt, to reduce interest rates, to improve borrowing conditions, to successfully reschedule the debts of the road sector, to step up reforms."

He voiced hope and confidence that the Commission's latest report would send a positive signal to financial markets and rating agencies, also in light of plans to reschedule the domestic and dollar debts due in November.

More news on Croatia’s economic growth can be found in the Business section.

ZAGREB, February 27, 2019 - Croatia's GDP grew by 2.3% in the last quarter of 2018, thus decelerating in comparison to Q3 when it grew at a rate of 2.8% year on year, the national statistical office (DZS) reported on Wednesday.

The DZS first estimates of the GDP growth in the last quarter of 2018 were actually lower than expected by eight economic analysts polled by Hina, whose average estimate was 2.6%.

A major positive contribution to the economic growth was made by household consumption in Q4. It grew 3.9% as against 2.7% in Q3 on the year.

The exports of commodities and services rose by 1.3% in Q4 2018 on the year. In parallel, the imports jumped by 6.6%.

Croatia's GDP was on the ascending line for 18 quarters in a row.

The seasonally adjusted data show that Q4 GDP strengthened by 0.1% compared to Q3 quarter to quarter.

In terms of quarter to quarter rates, Croatia's growth was slower than the European Union average (0.2%).

On the other hand, seasonally adjusted data show that Croatia's GDP increased 2.4% in Q4 compared to Q4 2017, and thus Croatia fared better than the EU average, 1.4%, year on year.

Croatia's economy throughout 2018 grew by 2.6% compared to 2017 when the growth rate was 2.9%.

Economic analyst Zdeslav Šantić underscores a positive accelerated growth of more than 6% in gross fixed capital formation in Q4 2018 as against 3.7% in the previous quarter. He told Hina that such a robust growth in investments was a record high since Q1 2017.

These figures show that the growth of national economy was not based only on tourism but also on investments, according to Šantić's explanation.

The director general of the Croatian Employers Association (HUP), Davor Majetić, told Hina on Wednesday that the slower growth of Croatia's GDP was not unexpected, saying that a further slowdown could be expected if Croatia continues to be slower than its competition in reform implementation and if reforms are not quick and comprehensive.

"The growth slowdown is not unexpected," said Majetić, adding that employers on several occasions stressed that, at the pace changes and reforms are implemented by the government, Croatia cannot expect bigger growth than between 2 and 3 percent.

Majetić said that in the last quarter of 2018, the biggest increase was recorded due to consumption. He said this was related to measures implemented by the Finance Ministry which enabled employers to pay out additional bonuses free of tax. He said that over one billion kuna was issued to citizens, adding that this was visible in consumption statistics.

"The result of that is that at this moment, productivity grows at a slower pace than salaries, which is expected, given the disruption on the labour market," Majetic said

More news about Croatia’s GDP can be found in the Business section.

ZAGREB, February 24, 2019 - Strong individual consumption and investments continue to support Croatian economic growth, but because of a decrease in industrial output and a slowdown in the export sector, analysts predict that the Croatian GDP growth rate slowed in the fourth quarter of 2018.

The National Bureau of Statistics (DZS) is due to release an initial estimate of GDP growth in the fourth quarter of 2018 next week. Eight macroeconomists polled by Hina predict that the economy has grown by 2.6 percent over the same period in 2017, their projections ranging between 2.3 and 3.2 percent.

It will be the 18th quarter in a row that GDP has been growing, but at a slower rate than in the third quarter when it grew by 2.8 percent year on year.

The projections for the third quarter reflect expectations that growth for the whole of 2018 will be somewhat slower than last year when the economy grew at a rate of 2.9 percent.

The analysts polled by Hina forecast that the growth rate for 2018 would be 2.7 percent on average, their estimates ranging between 2.6 and 3.0 percent.

More news about the economic growth in Croatia can be found in the Business section.

ZAGREB, February 22, 2019 - Economy Minister Darko Horvat said on Friday the current growth rates, 2.7% of GDP, 4% of exports and 4.3% of investments, were a good foundation but not enough to equate Croatia with the countries it would like to stand side by side.

Speaking at an investment conference, Horvat underlined the need for further reform and said that Croatia was in the middle of European rankings when it came to attracting investment. Right now, Croatia has one of the most stimulating frameworks for investors, he added.

By eliminating administrative obstacles and reducing non-tax levies and the cost of labour, we wish to relieve businesses in paying for labour but also increase every worker's net income, Horvat said.

He said some parts of Croatia attracted investment much faster than others and that some parts of the country needed to make drastic changes in this respect.

Starting a business must be possible in two days and an application for that is being developed, the wish being that every entrepreneur can start a business electronically in one step in only two days, Horvat said.

He said Construction Minister Predrag Štromar was implementing an action plan so that obtaining a building permit could be possible in 15 steps instead of 22.

Horvat said foreigners perceived Croatia primarily as a country of sea and sun as a lot of money had been invested in such a brand. On the other hand, Croatia is not recognised as an investment destination because it is not being marketed as such, he added.

Croatian Banking Association (HUB) director Zdenko Adrović said the HUB was pushing for a debate on how to encourage and increase investment, on measures for faster economic growth and on the position and influence of the financial and banking sector.

He said the results of HUB's "fight for the legal certainty of doing business... were not satisfactory. Our ultimate goal is to ensure a stable and predictable regulatory framework and the legal certainty of doing business, clear regulations and respect for expertise criteria."

Adrović said maintaining a stable and competitive banking system not only improved Croatia's perception among investors but the whole system of attracting investments as well.

Economic analyst Velimir Šonje said the investment climate had been improving over the past three years, primarily owing to private investment, while state investment slowed down the growth. "Investment recovery is the result of tourism, trade, the manufacturing industry, and electricity and gas supply. More than 50% of investments are financed from own sources, while 30% are loans and leasing."

More news on Croatia’s economy can be found in the Business section.