This Year GDP Falls by 0.9 Percent, 2014 a Reason for ‘Mild Optimism’

Analysts from Privredna banka Zagreb (PBZ) maintain their forecast of a 0.9 percent decline in GDP this year, while they are ‘mildly optimistic’ for the next year, expecting economic growth of 1 percent.

 - Although we expect a further slowdown in the decline of GDP in the third quarter, we remain of the opinion that GDP will record a decline of 0.9 percent for the entire year – state PBZ analysts in the publication PBZ Weekly Analysis released today. They note that the third quarter will largely rely on the positive effects of the tourist season and the impact of fiscalization, while the impact of losing the CEFTA market and increased competition in the domestic market, as well as the intensification of post-season negative trends in the labor market, will have a predominant negative impact on economic activity in the fourth quarter.

PBZ analysts are currently ‘mildly optimistic’ regarding 2014, predicting economic growth of 1 percent.

However, they emphasize that this estimate suggests that 2014 will be more of a ‘stabilization’ year than a year of growth.

Namely, although they expect that some sectors will emerge from the restructuring process and, due to improved competitiveness, find ‘their place in the sun’ of the so-called internal EU market alongside those who have already established their positions, the negative consequences of opening the domestic market and losing CEFTA must not be overlooked for domestic producers.

The biggest unknown at the moment is the state budget for 2014.

 - As the Guidelines for Budget Preparation are currently unavailable to us, and the initiation of the so-called Excessive Deficit Procedure (EDP) is certain, the level of state consumption is an unknown that can affect GDP in 2014 both positively and negatively – state PBZ analysts.

In the weekly review, along with a reflection on the data from the State Bureau of Statistics regarding the 0.7 percent decline in GDP in the second quarter on a year-on-year basis, they also comment on the latest data on industrial production and construction.

The decline in industrial production intensified again in July, with a year-on-year production decline of 4.1 percent, or 1.3 percent in the first seven months. Movements in industrial production are strongly influenced by the restructuring of shipbuilding and the loss of part of the export market (CEFTA, slow recovery of the EU), so PBZ analysts do not expect growth in industrial production this year either.

Significant changes are not expected in the construction sector, for which they predict a continuation of the slowdown or acceleration of the decline. They remind that in June, the year-on-year decline in construction work slowed to 2.2 percent, while in the first six months, total construction activity decreased by 4.7 percent, and at the same time, 29.6 percent fewer building permits were issued.

PBZ also reminds that the coincident economic indicator published by the Economic Institute – CEIZ index recorded a decrease of 0.40 index points in July compared to the previous month. Since October of last year, periods of growth and decline in the value of the index have alternated, and the continuation of such movements in July indicates that economic activity in the Croatian economy continues to stagnate in the third quarter of 2013. In other words, there are currently no signs of recovery in economic activity, but there are also no signs that the economic situation in the country is worsening further, say PBZ.