EBRD Lowers Croatia’s Growth Forecast to 0.8 Percent

The European Bank for Reconstruction and Development (EBRD) forecasts in its updated economic projections for transition economies that the Croatian economy will grow by 0.8 percent this year, thereby lowering its previous forecast by 0.4 percentage points.

The bank has also confirmed its October estimate of a 1.9 percent decline in economic activity in Croatia for 2012.

Croatia remains in recession, the EBRD states, pointing to a decline in activity last year of nearly two percent. They also assess that there are weak chances for a significant recovery in 2013.

“The Croatian economy continues to be pressured by long-standing problems of a non-competitive economy, inflexible labor market, and inefficient public sector. Some stimulus may come from EU accession, scheduled for July 1, 2013,” the statement says.

The growth forecast for 2013 for the sub-region of Central Europe and the Baltic states, which includes Croatia according to the EBRD, has also been lowered to 1.2 percent, compared to the previously estimated 1.7 percent in October. Alongside Croatia, the EBRD also includes Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia in this sub-region. For 2012, its growth is estimated at 1.3 percent, down from 1.4 percent in the October estimate.

Among neighboring countries, the EBRD predicts a more pronounced economic decline only for Slovenia, at two percent, confirming the October estimate. A slight decline is also forecast for Hungary, albeit weak, at 0.1 percent, while only the Baltic states can expect more significant growth this year, ranging from 2.9 to 3.1 percent.

For the entire region of EBRD operations in 2013, a growth rate of 3.1 percent is forecast, compared to the previously estimated 3.2 percent. The estimate indicates a repeated moderate acceleration of activity, compared to last year’s 2.6 percent. In 2011, activity grew by as much as 4.6 percent.

Signs of stabilization in the eurozone, according to EBRD economists, reduce the risks facing new Europe and lead to a cautiously optimistic assessment that the worst problems in the region may be coming to an end. Decisions on measures taken in the eurozone in recent months increase the prospects for economic improvement, although it will be very slow and gradual, they believe.

“The crisis in the eurozone will continue to negatively affect growth in the transition region, but as the eurozone crisis hits bottom, activities in transition economies that depend on the eurozone are likely to stop deteriorating.”

“For the first time in a long time, we are witnessing a possible reduction in the risks facing new Europe, especially those from the eurozone. It is too early to state that the danger has passed, but there are signs of stabilization,” emphasizes EBRD Chief Economist Erik Berglof.

The report also notes that the decline in exports in the second half of 2012 slowed compared to the previous six months and that the modest inflow of private capital, which returned to the region in the second quarter of last year, continued into the third quarter.

They also highlight that in the autumn of 2012, the process of deleveraging initiated by banks, primarily in the sub-region of Central and Eastern Europe and the Baltic states, as well as in the sub-region of Southern and Eastern Europe, significantly slowed. “However, this trend has not yet translated into a permanent improvement in credit growth in the region.”