ZAGREB, October 20, 2019 - Based on the movements of its CEIZ index, the Institute of Economics, Zagreb (EIZ) expects Croatia's real GDP to rise by 2.4% in the third quarter of 2019 compared with the same quarter of 2018 and by 0.6% compared with the second quarter of 2019.

After somewhat lower values in June and July this year, the CEIZ index improved in August, but failed to reach considerably higher values recorded in January and May.

The index has been falling year on year since January 2019. In the first two quarters of this year its decline even accelerated compared with the previous three months, averaging minus 1.6 points.

Seasonally adjusted data show that three of four CEIZ index components increased in relation to July, while central government budget VAT revenues declined by 14.2%. Year on year, the largest increase was recorded for tourist arrivals, which went up by 7.8% compared with August 2018.

Compared with the second quarter of this year, the CEIZ cumulatively increased by 0.6 points in July and August. The average value of the index in these two months was 1.4 points lower than the average index value in the third quarter of 2018.

"Such dynamics of the CEIZ index suggest that economic activity in the third quarter of this year rose at a slower rate than at the same time last year, but also that it picked up slightly in relation to the previous three months. Based on CEIZ index movements, we expect the annual real GDP growth rate to reach 2.4% in the third quarter of 2019, which is equal to the official growth rate in the second quarter of this year. Seasonally adjusted data indicate that GDP in the third quarter of 2019 rose by 0.6% quarter on quarter," EIZ said.

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ZAGREB, October 15, 2019 - The International Monetary Fund (IMF) has revised upward the projection of Croatia's real Gross Domestic Product for this and next year, saying that Croatia's GDP growth in 2019 is likely to be twice as strong as the growth of a group of countries which the Washington-based fund calls "Emerging and Developing Europe".

Croatia's economic growth is projected to revive to 3% in 2019, according to the IMF Winter Economic Outlook (WEO), which is 0.4 percentage points higher than the Fund's estimate released in April.

In 2020, Croatia's economy is expected to grow by 2.7%, which is 0.2 percentage points more than in the previous projection.

The IMF also estimates that Croatia's economy grew by 2.6% in 2018, which is 0.1 percentage point lower than in its previous forecast.

Croatia's economic growth of 3% in 2019 is twice as high as the projection for "Emerging and Developing Europe" which, apart from Croatia, includes Russia, Turkey, Poland, Romania, Ukraine, Hungary, Belarus, Bulgaria and Serbia.

The aggregate economic growth of that group is estimated by the IMF at 1.8% in 2019, and in 2020 the group's growth rate is set at 2.5%.

The main reason for the slower economic growth in "Emerging and Developing Europe" is Turkey's economic stagnation this year, which neutralises Hungary's 4.6% growth projection and Poland and Romania's growth projection of 4%.

The IMF also projects Croatia's unemployment rate of 9.0% this year to further fall to 8% in 2020, after it stood at 9.9% in 2018.

Croatia's consumer prices index is put at 1% in 2019 and 1.2% in 2020.

Croatia's current account balance surplus, expressed as a percentage of GDP, stands at +1.7% and +1% in 2020, after it stood at +2.5% in 2018.

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

ZAGREB, October 9, 2019 - The World Bank (WB) has upgraded its forecast of Croatia's growth for 2019 mainly thanks to solid domestic demand while the growth rate is expected to slow down over the next two years due to a slower increase in household consumption and investment as well as due to weaker foreign demand.

Croatia's growth is expected to pick up slightly in 2019 to 2.9%, the World Bank forecast in its Economic Update (ECA) Fall 2019 released on Wednesday, upgrading it from its June outlook by 0.4 percentage points.

In 2018, Croatia's GDP increased by 2.6%.

The WB slightly increased its outlook for Croatia's growth in 2020, by 0.1 pp to 2.7 percent, while in 2021 it foresees a slower growth of 2.4% which is equivalent to its June outlook.

Household consumption will make the largest contribution to overall GDP growth, which WB foresees will increase by 3.7%, reflecting further growth in employment and wages but also rising household borrowing.

A significant contribution could also come from investment activity both in the public and private sectors, partly reflecting greater EU funds absorption.

The WB foresees gross fixed capital to increase by 8.3% in 2019, double that of 2018. Government consumption is expected to increase by 3.5% after increasing by 2.9 pp in 2018.

The trade balance will continue to deteriorate and is expected to be higher than in 2018 considering that imports are expected to grow driven by strong domestic demand while exports are set to moderate and remain at last year's level.

The WB projects that Croatia's exports could increase by 2.8% while imports would grow by 6.3%. In 2018, exports increased by 2.8% and imports by 5.5%.

In 2020 and and 2021 that rate would remain stable at this year's level while the increase in imports should slow down to 5.3% in 2020 and 5.1% in 2021.

Inflation this year should slow down to 0.9%, down from last year's 1.5%. Next year inflation could step up to 1.0% and then to 1.4% in 2021.

In the next two years economic growth is expected to slow down due to expected slowing of household consumption as employment and wage growth gradually decelerate.

Investment growth too is set to moderate with an estimated growth of 6.4% of gross fixed capital investments in 2020 and 6.3% in 2021.

Exports might also edge down on the back of weak external outlook.

"Risks are skewed to the downside. Exports of goods are exposed to the risk of faster slowdown in external demand of Croatia’s main trading partners," the WB underscored.

"Tackling the weak potential of the Croatian economy would require a broad structural reform agenda with the aim to increase low productivity by raising the quality and mobility of both human and physical capital," the WB said.

The general government budget is expected to remain close to balance over the next two years, as revenues are expected to remain buoyant, while interest expenses could further diminish, the WB estimates.

A budget surplus of 0.2% is expected for 2019 while in 2020 a budget deficit is estimated at 0.2% and a balanced budget in 2021.

The public debt to GDP ratio could decline further to 70.4%, down from 74.5% in 2018. In 2020 it is expected to fall to 67.5% and in 2021 to 64.6%.

The WB warns that the decline in public debt could be negatively influenced by "strong pressures for wage increases in the public sector and a possible increase in spending before the general elections scheduled for Autumn 2020."

The report adds that "moderate economic growth should lead to steady income growth for the poor."

"Assuming that growth from 2019 onwards is equally distributed across all individuals, poverty would decrease from 4.2 percent in 2018 to 3.9 in 2019 and further to 3.3 percent by 2021," the WB says in its autumn outlook of Croatia's growth.

More GDP news can be found in the Business section.

ZAGREB, August 28, 2019 - Prime Minister Andrej Plenković on Wednesday described the GDP growth of 2.4% in the second quarter of 2019 as good and positive news, underscoring that the government is doing everything to strengthen the Croatian economy's resilience to a possible new recession.

The State Bureau of Statistics (DZS) on Wednesday released its initial estimate according to which GDP in Q2 rose by 2.4% on the year. That is the 20th quarter in a row that GDP increased but significantly slower than the 3.9% rate in Q1.

"That means that we are at the level of the first six months of a 3.15% growth rate which I think is absolutely in line with the European Commission's summer forecast released a few weeks ago. That is still above the average growth that we ourselves forecast in our Economic Guidelines and Fiscal Policy," Plenković told reporters in the eastern town of Osijek.

The European Commission forecasts an annual GDP growth for Croatia of 3.1% while the government has estimated that it will be 2.8%.

Plenković says that the data released today are showing a large growth of gross fixed capital formation, rising exports, and considering a high basis, a slightly slower rise in imports in the second quarter, and added that it is necessary to work on increasing industrial production.

The greatest positive contribution to GDP in Q2 was generated with the growth of gross fixed capital formation. Those investments grew by 8.2%, which is however somewhat slower than in the first quarter when it increased by 11.5%.

"Croatia's economy is growing for the 20th consecutive quarter, hence we are recording a continual growth which is positive and good," Plenković said.

He reiterated that during the term of his government the average monthly pay increased by 800 kuna, the average pay in the city of Zagreb is about 7,500 kuna, indexation on pensions has increased by more than 12% and the number of beneficiaries was growing and that with its budget discipline the government has generated a surplus for two years in a row despite unplanned payments for enforced guarantees of 4.5 billion kuna for the Uljanik shipyard.

"As a government, we are doing everything for the Croatian economy's resilience to grow," Plenković told reporters when asked if Croatia would be prepared for a global recession that economists have been forecasting.

He added however that economic trends have to be monitored in countries with which Croatia has a high level of trade.

He also underlined that Croatia's GDP growth in Q2 was a lot higher than the EU average.

Recently Eurostat released a report showing that the EU growth in the second quarter increased by 1.3% on the year.

Croatia's economic growth in Q2 was 0.2% the same as the EU's Q-on-Q.

Finance Minister Zdravko Marić on Wednesday said that Croatia's GDP growth of 2.4% in the second quarter was as the government and ministry had expected, he warned however that the Croatian economy was still highly dependent on imports.

Addressing the press, Marić said that several good things can be concluded from the figures released by DZS today but also several warnings that aren't just related to the second quarter but regarding Croatia's economic structure in general.

In reference to the warnings, Marić said that growth structure, particularly on the expenditure side indicated a negative growth rate of commodity exports as well as a high growth of imports once again, particularly commodities but of services as well.

"The import of commodities and services has that "deductible" component and negative contribution to GDP growth," Marić said.

Marić underscored that Croatia's economy is still highly dependent on imports and we all have to focus on additionally strengthening local productivity and creating added value so that that import dependency is reduced.

On the other hand, positive trends on the expenditure side of GDP is continuing with increased personal consumption which Marić described as completely following the trend of retail growth but also increased employment and wages. He added that as soon as domestic demand records a growth, be that personal consumption or investments, a strong import component is noticed and that needs to be emphasised.

Although the IMF and the EC recently upgraded their GDP growth estimates for Croatia, the government however remained cautious and did not wish to exaggerate its forecast for the second quarter and that Croatia's forecast of annual GDP growth will remain at 2.8%.

Asked by the press whether he was concerned by the fact that Germany and Italy, which account for 40% of the destinations for Croatia's exports are on the brink of a recession, the minister said that the duty of the government is "to make the country resilient to all scenarios".

More economy news can be found in the Business section.

ZAGREB, August 28, 2019 - In the second quarter of 2019, the Croatian economy increased 2.4% on the year, markedly slower than in the first quarter, when GDP growth jumped to 3.9%, the national statistical office said on Wednesday..

The second quarter of this year was the 20th quarter in a row that Croatia's GDP grew.

The biggest positive contribution to GDP came from a 8.2% growth of gross investments in fixed capital, which was down from the 11.5% growth recorded in Q1.

The contribution of domestic demand was positive, as was the contribution of final consumption and gross investments.

The net foreign demand contribution was negative.

In Q2 2019, household consumption went up 2.7% on the year, as against the 4.4% growth in Q1, while government consumption went up to 3.9% from 3.1%

The export of commodities and services went up 1.3%, slower than in Q1, with commodity exports decreasing by 0.9%, while service exports went up 3.6%.

The import of commodities and services went up 6.7%, with commodity imports rising by 7.9% and service imports by 1.3%.

In Q2 2019, according to seasonally adjusted data, Croatia's GDP grew 0.2% from Q1 2019 and 2.5% from Q2 2018. This was higher than the EU average. Eurostat said recently that in Q2 2019 the EU economy grew 1.3% on the year and 0.2% on the quarter.

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

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.

More economy news can be found in the Business section.

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.