ZAGREB, February 12, 2019 - Environment and Energy Minister Tomislav Ćorić said on Tuesday that Croatia was not at risk of recession and that Croatia's economy would grow significantly more than 2% while the negative impact of other economies slowing down on Croatia's tourism could be buffered by raising the quality in that sector.

Ćorić was replying to reporters outside Government House ahead of a meeting of coalition partners when asked about theories that another recession could occur on the global level in 2020 and whether Croatia should be concerned.

He said that although there are some indications of a recession in some countries, primarily in Germany and Italy, he believes that based on estimates over the past few weeks, Croatia's economy would grow significantly more than 2% and that the government hopes that certain investment cycles could further boost that growth.

The European Commission downgraded Croatia's growth forecast for this year to 2.7% from an earlier forecast of 2.8% because it expects a slowing down in the growth of exports due to weakening economies in the European Union, which are Croatia's most important trade partners.

Analysts from the Economic Institute in Zagreb (EIZ), however, on Monday estimated that the real GDP growth in Croatia in Q4 could be 2.3%, significantly lower than had been expected based on data for October and November and an annual GDP increase of 2.6%.

"In that context, I don't see that Croatia is at risk of recession," Ćorić claimed.

He noted that the slowing down in economic activity in some other countries will impact the very important economic segment of tourism however, regardless of that, he was certain that raising the quality in the tourism sector "would somehow buffer that problem."

Economy, Entrepreneurship and Crafts Minister Darko Horvat said the EC and all relevant institutions forecast Croatia's economic growth would be between 2.7% and 2.9% and that there is no indication that something drastic would change in 2020 either.

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

ZAGREB, February 7, 2019 - The European Commission has revised down its GDP growth forecast for the Croatian economy for this year, from 2.8 percent to 2.7 percent, expecting a slowdown in exports growth due to the weakening of EU economies, Croatia's most important trading partners.

In its interim winter economic forecast, published on Thursday, the Commission projected the Croatian GDP growth rate at 2.8 percent for 2018 and at 2.6 percent for 2020. These two projections remained unchanged from its autumn forecast, released in November 2018, whereas the growth forecast for 2019 was lowered from 2.8 to 2.7 percent.

The growth of 2.8 percent in 2018 would mark a slight slowdown from 2017 when GDP grew by 2.9 percent.

In the first three quarters of 2018, the Croatian economy grew by 2.7 percent compared with the corresponding period of 2017. The Croatian Bureau of Statistics (DZS) is due to release data for the fourth quarter of last year later this month.

The European Commission noted that last year's growth was increasingly driven by private consumption, while exports slowed somewhat, particularly to non-EU neighbouring countries in the second half of the year.

"Private consumption is expected to remain the main driver of growth, supported by improving labour market conditions, positive consumer sentiment, low interest rates and subdued inflation. Administrative data at end-2018 suggest that dynamic employment growth continues to drive a steady fall in the unemployment rate. Private investment is expected to continue its modest growth, as companies continue to enjoy favourable financing conditions. The projected pick-up in disbursements from EU funds should provide a boost to public investment, which will nevertheless stay well below pre-recession levels," the report says.

The Commission predicts a slight slowdown in GDP growth for this year. "In view of the anticipated slowdown in Croatia’s main trading partners in the EU, goods exports are likely to grow more slowly than in recent years. Service exports are expected to continue performing well on account of an increasingly extended tourist season and sizeable investment in higher-end hotels in recent years. Bolstered by high domestic demand, imports of goods are set to remain strong, slowing only slightly over the forecast horizon and driving the goods trade balance increasingly negative," it said.

"Inflation has remained relatively low despite higher disposable income and recent spikes in energy prices. Wage pressures are expected to strengthen as unemployment continues to shrink further. However, inflationary pressures are projected to remain subdued thanks to the VAT rate reduction on several unprocessed food products this, and the 1 pp. reduction of the standard VAT rate next year, as well as stabilising commodity prices. In all, headline inflation is forecast at 1.4% in both 2019 and 2020," it added.

The European Commission's projections are similar to those by other analysts. Eight economic analysts recently polled by Hina expect that the Croatian economy will grow at an average rate of 2.7 percent this year, their projections ranging from 2.5 to 3.0 percent.

The Croatian National Bank has forecast a growth of 2.7 percent. The World Bank has estimated the growth rate for Croatia for this year at 2.8 percent, the International Monetary Fund at 2.6 percent and the European Bank for Reconstruction and Development at 2.5 percent.

The Croatian government based its budget for 2019 on a GDP growth projection of 2.9 percent.

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

ZAGREB, January 9, 2019 - The World Bank has mildly increased the outlook on Croatia's economic growth this year, warning that activities in Croatia, Bulgaria and Romania are held back by softening exports and labour shortages. Croatia's economy is projected to grow 2.8% this year, the World Bank said on Tuesday. In last June's outlook, the growth was projected at 2.7%.

The World Bank projects that Croatia's economic growth in 2018 was 2.7%, revising upwards the projection from last June by 0.1 percentage points, while upholding the growth projection for 2020 at 2.8%. In 2021, growth is projected to slow down to 2.6%.

"Softening exports and labour shortages held back growth in Bulgaria, Croatia and Romania, while fiscal support and strong consumption enabled Poland to grow a faster 5 percent," the World Bank said.

As for the global economy outlook, the World Bank points to a softening of international trade and manufacturing activity around the world as well as elevated trade tensions. Therefore, it reduced global growth projections for this year and 2020 by 0.1 percentage points. The growth projection is 2.9% for 2019 and 2.8% for 2020 and 2021.

"At the beginning of 2018, the global economy was firing on all cylinders, but it lost speed during the year and the ride could get even bumpier in the year ahead," said World Bank Chief Executive Officer Kristalina Georgieva.

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

ZAGREB, January 7, 2019 - Analysts of the Zagreb Institute of Economics (EIZ) expect, based on movements of the Coincident Economic Index (CEIZ) for October 2018, that the real GDP growth rate in the fourth quarter of last year could be 2.9% compared to the same period of 2017, which is a slightly higher rate than in the preceding quarter, when real GDP grew 2.8%.

EIZ analysts note that the increase in the index in October is mostly owing to an increase in budget revenues from VAT, a greater volume of retail sales and more tourist overnight stays.

They also note that the increase in the value of CEIZ for October would have been higher had the volume of industrial production not dropped for the fourth consecutive month.

"Based on CEIZ trends, we expect the real GDP growth rate in Q4 of 2018 to be 2.9% as against the same period of 2017, which is a slightly higher annual GDP growth rate compared to Q3 2018, when GDP grew 2.8%," the analysts said, noting that a more accurate estimate of real GDP growth for the last quarter of 2018 would be available once data for November and December were made available.

The Coincident Economic Index is a monthly composite business cycle indicator developed by the Institute of Economics. Its purpose is to provide timely information on the current business cycle condition.

More news on Croatia’s GDP growth can be found in our Business section.

ZAGREB, January 1, 2019 - The Croatian Chamber of Commerce (HGK) expects Croatia's economy to continue rising in 2019 on the back of accelerated implementation of the necessary reforms. Still, the pace of economic growth should be accelerated.

"It is essential to ensure the continuation of fiscal consolidation and discipline that has already brought about benefits and stabilised public finances, thus helping to improve the country's credit rating," the HGK said.

A well-balanced budget enables certain tax breaks, which is an additional positive impulse to the economy, the chamber says.

The projection of the state budget's revenues is based on a realistic projection of an economic growth rate of 2.9%, however, the calculations and plans could be marred by guarantees issued for shipyards' borrowing, the HGK warns.

The HGK also finds it worrisome that the planned public debt to GDP ratio of more than 70% places Croatia above the average across the European Union.

The chamber also warns that a portion of state consumption in GDP is higher than this ratio in Croatia's peers, and this segment requires changes.

"It is of exceptional importance to systematically work on the diversification of our economy. Our dependence on tourism, a volatile industrial branch, gives rise for concern. We need other stable branches, a strong IT sector, increasing exports as well as more and more investments in research and development. We must absolutely facilitate the efforts of our entrepreneurs to do business here, and digitisation is crucial."

The HGK warns about labour shortages, which could be offset in the short term by higher quotas of foreign workers but in the long run, this issue could be coped with only by a reformed educational system.

Croatian Employers' Association (HUP) president Gordana Deranja has told Hina that employers insist on the implementation of reforms in 2019 so that they can have higher disposable incomes.

HUP keeps warning that in terms of resolution of key issues and implementation of in-depth reforms, Croatia fares worst even among countries of the so-called New Europe. This primarily refers to the burden on the enterprise sector and problems facing the labour market, the healthcare system, education and the pension system as well as the judiciary.

Our hesitation in launching substantial reforms hinders a higher growth, and rates between 2.5% and 2.9% place us together with Bulgaria at the bottom of the EU rankings, says Deranja.

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

ZAGREB, December 30, 2018 - After a steady growth in 2018, analysts expect Croatian GDP growth to decelerate in 2019, the tourism sector to attract record-high numbers, the public debt to further go down and the country's credit rating to improve, while a slower global economic growth and protectionism will pose the biggest risks to the national economy.

Croatia's Gross Domestic Product (GDP) growth in 2019 could be below the level recorded in 2018.

According to eight economists polled by Hina, the average economic growth in 2019 could reach 2.7%, with their projections ranging between 2.5% and 3%.

OTP Bank Croatia expects the 2019 growth to slow down to 2.5%, compared to the projected growth of 2.7% in 2018.

The bank's chief economist Zdeslav Šantić warns that 2019 will bring many external risks, including a trade conflict between the United States and China, the escalation of which could result in a significantly lower global economic growth which will indirectly affect Croatia.

He also believes that 2019 will be a turning point in the European Central Bank's monetary policy which next year could absorb all monetary incentives and launch a gradual normalisation of interest rates, after reducing them for years. This will result in a higher price of borrowing.

Šantić also said that the unemployment rate would continue to go down in 2019, albeit at a slower pace than in 2018.

Zrinka Živković-Matijević of Raiffeisenbank Austria (RBA) expects a mild deceleration in the economic growth pace in 2019. She also expects a steady tourism growth.

"Despite the continued favourable tourism results, albeit at a more moderate rate, and growing exports, the net foreign demand will have a negative contribution to GDP growth in the projected short-term period," she says.

Živkovic-Matijević says that competitive tourism destinations such as Turkey, Greece and Northern Africa should not be overlooked.

This analyst predicts that further strengthening of protectionist measures on the global scene could lead to a slower growth in some of Croatia's important trade partners which in the end could result in unfavourable domestic economic trends.

Erste Bank main economic analyst Alen Kovač tells Hina that he expects a mild deceleration of the economic growth in the new year.

Household consumption continues giving a significant contribution to GDP growth, as reflected through positive labour market trends, higher employment and stronger income rise, according to Kovač's assessment. He also forecasts a rise in investments at an accelerated rate.

Changes in the taxation framework will have a positive impact in 2019, he says, adding that he expects the public debt to keep falling.

Kovač commented on uncertainties in the pace of foreign demand as the biggest obstacle to a more robust growth.

Croatia is vulnerable to certain shocks stemming from the trends in external demand considering global trends, trade war and rising uncertainties in the global economic pace, he says.

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

ZAGREB, December 21, 2018 - Investments and personal consumption will be the main levers of GDP growth in Croatia in 2019, when economic growth is expected to slow down from the current rate of 2.8% to 2.6%, it was said at a presentation of the latest Croatian Banking Association (HUB) publication on the most important economic and financial trends and expectations for 2019.

The previously forecast increase in real GDP of 2.7% for 2018 was raised by 0.1 percentage point at the end of the year, to 2.8%. Economists evidently expect some cushioning mechanisms to become active on the domestic market, with internal growth reserves awakening, the HUB publication says.

"In 2019, we expect GDP growth in Croatia to slow down mildly, to 2.6%. The pace of investment growth will determine the growth rate," said Zagrebačka Banka chief analyst Hrvoje Dolenec, one of the six members of the HUB Chief Economists Club, made up of the chief economists of the six biggest banks active in Croatia.

Personal consumption will continue to be the main driver of economic growth in 2019, but the economists point to investments as the most important factor. Personal consumption is expected to grow by 3.1%, and investments by 6%, with investment growth estimates ranging from 3.6% to 6.7%.

Dolenec said that the very positive expectations regarding the state budget had been slightly shaken by the prospect of enforcement of state guarantees for the Uljanik shipbuilding group. So, instead of a small surplus this year, a slight budget deficit is expected but that does not significantly change Croatia's fiscal status, which is still good and has a positive effect on how the country is viewed internationally, he said.

Dolenec believes that Croatia is likely to return to the investment rating.

As for investments in 2019, Dolenec mentioned revived activity in the construction sector, with companies in that sector being very optimistic about 2019.

Dolenec also underlined EU funds and data from the Regional Development and EU Funds Ministry which shows that in the last two years the value of contracted projects to be implemented had increased 500%, but he warned that their fast implementation was crucial for GDP growth.

As for obstacles to growth in 2019, Dolenec underlined imbalances on the domestic labour market - a great demand for employment in some sectors on the one hand and on the other, insufficient labour supply, primarily in the tourism, IT and construction sectors, as well as in healthcare.

Analyst Velimir Šonje of Arhivanalitika said that the external risks that could slow down Croatia's economic growth were protectionism, namely the lack of a trade agreement between the USA and China, oscillations on emerging markets, and the slowing down of China's economic growth. Dependence on China is great around the world, and the slowdown in China can reflect on important exporters, which is why expectations in Germany, too, have been significantly revised, said Šonje.

HUB director Zdenko Adrović said that interest rates on loans had been declining for the past several years. Over the last three years, interest rates on housing loans have dropped from an average 5.7% to 3.45%, while interest rates on consumer loans have dropped from 6.5% to 5.6%. Another important group of loans, long-term corporate investment loans, have seen a drop in interest rates from 5.8% to 3.6%. "Those are favourable factors with which Croatia is entering 2019," Adrović said.

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

ZAGREB, December 18, 2018 - The Croatian National Bank (HNB) forecasts Croatia's economic growth in 2018 and in 2019 at the rate of 2.7%, the central bank's governor, Boris Vujčić, said at a news briefing in Zagreb on Tuesday.

We expect the growth to be at the same rate as this year, 2.7%, however, downward risks are prevailing, the governor warned.

The main contribution to the growth will come from personal consumption, which is likely to rise from the expected rate of 3.2% this year to 3.5% in 2019.

Vujčić went on to say that gross fixed capital formation could be markedly intensified from this year's projection of 3.7% to 6% in 2019, provided that state investments rise on the back of a stronger absorption of EU funds. Investments are vital, as they lay the ground for sound and sustainable growth, he added.

Considering the labour market, the HNB expects employment to grow and, in parallel, unemployment to fall to a record low 7.2%. This year, employment is set to rise at the rate of 2.4% and a further 1.8% in 2019.

The HNB expects the inflation rate to slow down from 1.5% in 2018 to 0.9% in 2019.

Commenting on the conditions for borrowing, Vujčić said that favourable trends continued to be present. Interest rates on loans are falling and interest rates on state borrowing are around zero thanks to high liquidity on the financial market, Vujčić said.

The HNB continues conducting its expansionary monetary policy in order to sustain high liquidity of the system in parallel to a stable kuna-euro exchange rate. For this purpose, the HNB will continue implementing interventions on the foreign currency market, according to Vujčić.

The latest foreign exchange intervention by the central bank was conducted on Monday, when it purchased 457.7 million euro at the average exchange rate of 7.397965 kuna per euro, thus injecting some 3.39 billion kuna in the system, Vujčić told reporters. This was the second fine-tuning operation of this kind in December and the fourth so far in 2018.

The average excess liquidity in the domestic currency in the first eleven months of 2018 totalled 24.6 billion kuna, or 9.4% of GDP.

Gross foreign reserves stood at 17 billion euro at the end of September, 1.3 billion more than at the end of 2017.

More info on Croatia’s economic growth can be found in our Business section.

ZAGREB, November 29, 2018 - Digitisation of Croatia could increase its gross domestic product (GDP) by 8.3 billion euro by 2025, according to the findings of a survey presented on Wednesday by the McKinsey Croatia.

If Croatia were to focus on digitisation and automation as of tomorrow already and start working on it, by 2025 the potential incremental GDP from a digital economy could be 8.3 billion euro, Tomislav Brezinščak of McKinsey&Company said presenting the survey results.

"If we look at the past five years, Croatia's growth was 12%, which a little less than growth in EU member states in central Europe but it is still significantly a higher growth than in some large EU economies and in digital leaders," Brezinščak said. He said that Croatia was not lagging far behind other EU member states, however, when compared to developed economies, there is an obvious big gap, when measured by GDP per capita.

Compared to advanced economies, Croatia's GDP per capita is as much as four times lower.

He noted that today there are two types of economies – traditional and digital. Croatia's share in the digital economy is 5%, less than in other countries. However, that is not the main problem but rather, when comparing growth in digital economies and traditional ones. "Croatia is the only country in which traditional economy is growing faster than the digital one," he said, adding that a digital economy is the main factor of economic growth.

He added that with regard to employment, with automation today's manual, repetitive jobs will be replaced by jobs that a more productive, creative and lead to a great economic value.

Brezinščak said that it is necessary to start organising retraining for productive vocations that digitisation provides. "We don't have a good education, our infrastructure isn't the best, people find it hard to accept new skills and an entire infrastructure related to improving and accelerating new businesses for a digital economy doesn't exist," he warned.

He added that Croatia has to focus its digitisation based on three existing favourable factors. "The first fact is that Croatia has a large number of students graduating in ICT, next the cost of labour in the ICT sector has a strong competitive advantage and we have representative examples of it in the public and private sectors," he underscored, presenting recommendations for digitisation in Croatia.

For more on Croatia’s GDP, click here.

ZAGREB, November 28, 2018 - The head of the national statistical office (DZS), Marko Krištof, said on Wednesday the good tourist season, also owing to the FIFA World Cup, resulted in higher-than-expected economic growth rates. The DZS today released an initial estimate of GDP showing that the Croatian GDP grew by 2.8% in Q3 2018, compared to Q3 2017. The rate was lower than in Q2 but higher than anticipated. This was the 17th quarter in a row that GDP grew, albeit at a slower rate than in Q2, when it grew by 2.9% year on year. Eight analysts polled by Hina predicted the growth would be 2.3%, their forecasts ranging from 2.2 to 2.5%.

"The expectations were that the growth would not be as high as in the previous period, but the good tourist season, probably also owing to the football world cup, increased the growth rates," Krištof said at a press conference.

Broken down by component, the biggest contribution to GDP in Q3 came from higher exports of goods and services. Krištof said this was in line with forecasts as tourism's share was the strongest in Q3.

The contribution of domestic demand was also positive and, of its components, household spending, which grew 2.7% on the year, had the strongest impact on economic trends.

Gross added value in Q3 went up 2.2% year on year in real terms and the biggest contribution came from retail and wholesale, which grew for the 49th month in a row.

The biggest contribution to the volume decrease was recorded in manufacturing, first and foremost due to a production volume decrease in shipbuilding.

Marked growth, of 7.1%, was recorded in construction. All sectors except industry, mining and extraction recorded positive growth rates.

According to seasonally adjusted data, Croatia grew faster than the European Union average for the third quarter in a row. Excluding the one quarter in which growth was somewhat slower, Croatia would have had a faster yearly growth for 13 quarters in a row, said Krištof. The EU growth average is 1.9%.

Croatia recorded a twice as fast growth also quarterly, 0.6% as against 0.3%, which again was the third straight quarter in which Croatia grew faster than the EU average.

Commenting on the latest statistics, Economy Minister Darko Horvat said on Wednesday that reducing the tax burden on the business sector was slowly yielding results.

"The processes regarding the implementation of the action plan to reduce the tax burden on the business sector are slowly yielding results," Horvat told reporters outside the government headquarters. "These processes will continue for a long time," he said, adding that similar action plans were being prepared.

He went on to say that an action plan to be presented to the government in about ten days would propose the cancellation or simplification of 322 procedures, including the cancellation or reduction of some of the non-tax levies.

Horvat said that he was confident growth projections in the first two quarters of next year, when the planned measures are to be implemented, would continue to be good.

For more on the Croatian economy, click here.