Despite a 14.3 percent increase in tax revenues in the first half of the year, along with slower public spending, Hypo Alpe-Adria-Bank analyst Hrvoje Stojić believes that by the end of the year, the budget will achieve a deficit of 3.8 percent of GDP, which is one percentage point higher than the government’s plan.
The reason for this, he argues, is the intensification of pre-election state spending in the second half of the year and lower tax revenue inflows. The total fiscal deficit could be even larger, ranging from five to six percent of GDP, influenced by funds for repaying debts to pensioners (1.1 percent of GDP), the deficit incurred by HBOR (0.4 percent of GDP), and increased borrowing by shipyards through state guarantees (up to 1.6 percent of GDP). Stojić forecasts a GDP growth of 5.8 percent for this year. This growth is supported by personal consumption, the tourist season, a favorable external environment, and intensified public investments ahead of elections.
For the next year, he predicts a slowdown in growth to 5.2 percent due to a more neutral fiscal policy, a slowdown in personal consumption growth, and a high degree of import dependency in the economy. In 2008, a further strong growth in industrial production is expected at 5.4 percent, while this year’s growth is projected at six percent. Despite stronger demand from the EU, the contribution of domestic exports to GDP is modest, due to the low degree of openness of the local economy. Thus, commodity exports in our country account for only 25 percent of GDP, while in four Central European countries, it is 60 percent. This year, Stojić predicts an increase in the trade deficit to 10.1 billion euros, or 27 percent of GDP.
