Slowed GDP Decline?

The State Bureau of Statistics will today publish the first estimate of gross domestic product for the third quarter, which is expected to show that the economy has declined again, but at a slower pace than in the previous quarter.

Eight macroeconomists who participated in a Hina survey estimate on average that the economy weakened by 1.5 percent year-on-year in the third quarter. All expect a decline, ranging from 1 to 1.9 percent. This would mark the fourth consecutive quarter of economic decline, but slower than in the previous quarter when GDP fell by 2.2 percent.

The domestic economy has been weakening since the beginning of 2009. It technically emerged from recession twice, in the third quarter of 2010 and the second quarter of 2011, but negative trends continued thereafter. In the first half of this year, GDP fell by about 1.7 percent, and despite a good tourist season, a decline is also expected in the third quarter.

-Almost all components of GDP indicate that the economy also declined in the third quarter. Personal consumption is burdened by a very weak and exhausted labor market, which is reflected in the acceleration of annual unemployment growth, a continuous decline in employment, and a continued drop in real wages and disposable income. At the same time, consumer pessimism has risen again, notes one of the macroeconomists in the Hina survey. The weakness of the labor market is indicated by the fact that in October, the number of unemployed reached 333 thousand, which is 13.5 percent, or nearly 40 thousand people, more than in the same month last year.

Due to the rise in unemployment, real disposable income is decreasing, leading to weaker personal consumption. However, the decline in retail trade was somewhat milder in the three summer months than in the previous quarter.

-A slight dynamization of trade activity compared to the second quarter can be attributed to a good tourist season and tourist spending-, it is stated in the Hina survey. However, industrial production remains under pressure. In September, for example, it plummeted by 7.7 percent, which is a result of falling domestic consumption, but also the weakness of foreign demand.

The economy of the eurozone, our largest foreign trade partner, has once again plunged into recession, the second since 2009. After a decline of 0.2 percent in the second quarter, the economy of the 17-member eurozone weakened by a further 0.1 percent in the third quarter. On an annual basis, it fell by 0.6 percent.

As a result, demand from these countries for imported products has weakened, leading to a decline in Croatian exports in recent months.

Expressed in euros, exports in the first nine months were 2.2 percent lower compared to the same period last year.

-Despite the decline in goods exports, inflows from services will mitigate negative trends, and real imports of goods and services have certainly fallen more sharply than exports. Therefore, we expect a positive impact of net exports on GDP-, notes one of the macroeconomists in the Hina survey.

However, the decline in imports only confirms that domestic consumption and industry continue to weaken. Additionally, investments remain a painful point.

-Investments are still in deep recession. Construction activity has continued to weaken, as indicated by the further decline in construction, and a shortfall in public enterprise investments is also likely-, it is stated in the survey. Credit activity does not indicate a revival of the economy either.

-The decline in bank loans for both consumption and investment activity continues, as there is no demand for loans from either households or businesses-, emphasizes one of the macroeconomists in the Hina survey.