UniCredit forecasts 1.6 percent growth of Croatian GDP for 2011

The first estimate of GDP growth for the third quarter of 2010 is 0.2 percent year-on-year. Seasonally adjusted data compared to the second quarter also indicate the end of the recession in Croatia.

However, the currently available data for the fourth quarter suggest a rather fragile recovery, while a growth of 1.6 percent is expected in 2011, according to expectations for Croatia presented in the new quarterly macroeconomic forecasts of the UniCredit Group for Central and Eastern European countries. Expectations for 2011 revolve almost exclusively around the anticipation of the conclusion of negotiations for Croatia’s full EU membership, said Goran Šaravanja, chief economist of Zagrebačka banka, on the occasion of the publication of UniCredit’s CEE Quarterly for the first quarter of 2011. Pointing to the fragile recovery, he notes that the decline in industrial production in the traditionally strong October was greater than expected. In 2011, we expect a weak recovery of domestic demand and maintain our growth forecast of 1.6 percent, says Šaravanja. The inflation forecast for 2011 remains at 2.3 percent. The forecast for the current account deficit of the balance of payments in 2010 has been reduced to 2.6 percent of GDP, with the main reasons for the new forecast being the reduction of the trade deficit in the first ten months of this year by 1.4 billion euros and another good tourist season. Given that they expect a slight recovery of domestic demand in 2011, they predict that the current account deficit of the balance of payments will increase to 3.5 percent of GDP.

“We expect that the exchange rate in 2011 will move within the range it moved in 2010 without changing the monetary framework as the growth of external debt has slowed, as we expect that the difference between the current account deficit and inflows of foreign direct investments in 2011 will remain unchanged (-0.9 percent of GDP) and as we expect a slight reduction in the repayment of external debt in absolute terms next year,” said Šaravanja. However, he emphasizes, expectations for 2011 revolve almost exclusively around the anticipation of the conclusion of negotiations for full EU membership. He notes that the Government of the Republic of Croatia has set itself the goal of concluding negotiations by mid-2011, while European Union officials, although encouraging Croatia to achieve its goal, are very cautious in their statements, refusing to give Croatia an official date for EU entry.

“However, we expect that Croatia will successfully conclude negotiations for full EU membership during 2011,” commented Šaravanja on Croatia’s accession negotiations. Expectations that Croatia will achieve economic growth next year and finally conclude negotiations for full EU membership are the main assets when it comes to investor sentiment. Entering an election year, that is, the postponement of more serious reform measures until after the elections and the potential negative effects of this on the budget deficit represent the biggest risks, assesses Šaravanja, adding that they do not expect a change in credit rating in the next 12 months. (H)