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 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.