In the fourth quarter of 2009, the decline of Croatia’s GDP between 5 and 6 percent

Due to a sharp decline in consumption and investments, along with rising unemployment, it is estimated that in the fourth quarter of last year, the Croatian economy weakened between 5 and 6 percent, and all recent data indicate that the recession will continue in the first part of this year.

The State Bureau of Statistics is expected to publish today the first estimate of gross domestic product for the last quarter of last year, which will undoubtedly indicate the continuation of recessionary trends. Nine macroeconomists who participated in the Hina survey estimate that the economic decline in the fourth quarter of last year amounted to between 4.5 and 6.3 percent. On average, they expect a GDP decline of 5.3 percent. This represents a mitigation of the economic slide, considering that in the first three quarters of last year, the GDP decline slowed from 6.7 to 5.7 percent. “However, this does not mean that the situation in the economy is improving, but rather that it is a continuation of the reduction in activity, although relatively mild compared to previous quarters, as indicated by the seasonally adjusted data. Namely, observing the series of year-on-year growth rates by quarters can lead to a misleading conclusion about a gradual improvement in the state of the economy, given that the declines are becoming smaller. In the fourth quarter, according to seasonally adjusted data, industrial production stagnated; however, construction work decreased as did retail trade, and unemployment rose, which overall resulted in a continuation of the decline in total activity,” states one of the macroeconomists in the Hina survey.

The continuation of double-digit declines in investments and a strong decline in personal consumption have contributed the most to the continuation of recessionary trends. “The existing data from the real sector in that quarter, which includes a decline in industrial production of 7.7 percent, a decline in retail trade of 14.4 percent, stagnation in bank credit activity, a continuation of double-digit declines in imports and exports, a continuation of rising consumer pessimism, rising unemployment, and a real decline in wages, show that recessionary trends continued in the last months of 2009,” it is stated in the Hina survey. Despite this, a slowdown in the decline of GDP is expected in the coming quarters compared to the same period a year earlier. However, the reason for this is merely the reduction of the GDP base, that is, the slowdown in economic growth at the end of 2008, and the decline from the beginning of 2009.

Therefore, the unchanged state of the economy results in increasingly smaller rates of decline compared to the previous year, explain macroeconomists. The current recession, which began in the first quarter of last year, is already twice as long as that of 1999, which lasted only two quarters, and the weakening of the economy could continue, according to the opinion of most macroeconomists, at least in the first two quarters of this year. “The continuation of unfavorable trends will be particularly pronounced in the first half of the year when negative trends in the labor market will peak, and foreign demand alone, without significant changes in the domestic real sector, is not sufficient to support the recovery of industry and initiate an investment cycle.

Without increasing labor competitiveness, and the fastest way is to reduce the fiscal burden on employees’ income, there will be no increase in employment, disposable income of the population, and recovery of consumption. In short, to exit the crisis, a more efficient and cheaper state is necessary, which should be achieved by reducing public sector expenditures and simultaneously reducing tax rates and parafiscal procedures and fees on the side of public revenues,” states one of the macroeconomists in the Hina survey. As the most important economic problems, macroeconomists cite the decline in personal consumption and investments, as well as the rise in unemployment. At the end of January, the number of unemployed reached 309,000, and the unemployment rate was 17.7 percent, the highest level since March 2006.

“So far, the foundation of growth has been personal consumption, and we do not see it as a factor of recovery, at least not in the first part of the year. Unemployment is rising, public expectations are negative, as indicated by low consumer expectation indices from the Croatian National Bank, people are afraid and do not spend. Investments will also not significantly increase as there is no one to finance them. Therefore, in the first half of the year, in the best case, we expect stagnation of the economy at the level of the second half of 2009, and then a slight growth by the end of the year is possible. However, this depends on tourism and exports, which in turn depend on the recovery of the European Union,” states one of the macroeconomists in the Hina survey. Of the nine macroeconomists who participated in the Hina survey, eight estimate that in 2010 the economic decline will amount to between 0.7 and 2.5 percent, while only one expects growth of 1 percent. On average, they expect a GDP decline of 1.2 percent.(H)