European Commission: Implement Structural Reforms to Stop the Growth of Public Debt!

The European Commission on Thursday raised its estimate of Croatia’s economic growth for this year to 1.1 percent compared to the forecasts from May when it expected growth of 0.3 percent, but called for the implementation of structural reforms to stop the growth of public debt.

The European Commission on Thursday published its autumn economic forecasts for this year, next year, and 2017, which include data on GDP movements, inflation, employment, budget deficit, and public debt in member states, candidate countries, and major trading partners of the European Union. After this year’s growth of 1.1 percent, GDP growth is expected to accelerate to 1.4 percent next year, and to 1.7 percent in 2017.

– Today’s forecasts show that the Croatian economy should grow again after six years of recession. The Commission’s economic forecasts predict a growth of 1.1 percent of GDP this year, accelerating to 1.7 percent in 2017, thanks to increased external demand from Croatia’s main trading partners and higher domestic demand. In an environment of slowing global economy, it is of utmost importance to strengthen the foundations of the economy through structural reforms and the reduction of the very high public debt, which could, without decisive action, reach nearly 93 percent of GDP by 2017, said Valdis Dombrovskis, Vice-President of the Commission responsible for the euro and social dialogue.

Economic growth at the EU level is expected to accelerate slightly this year to 1.9 percent from last year’s 1.4 percent. In all member states, the Commission forecasts GDP growth this year except in Greece, where the economy is expected to decline by 1.4 percent. Ireland is expected to have the highest growth at 6 percent, followed by Malta at 4.3 percent, and Poland and Romania at 3.5 percent each. Very modest growth is expected in Finland at 0.3 percent, Austria at 0.6 percent, and Italy at 0.9 percent.

– After six years of recession, the Croatian economy should finally grow, by 1.1 percent in 2015, after the decline in domestic demand has been halted, and exports continue to grow strongly. The growth is estimated to accelerate to 1.7 percent in 2017 based on better absorption of European funds, the Commission states.

The long-standing crisis has had a significant impact on the Croatian economy – the economy in the second quarter of 2015 was approximately 12 percent weaker compared to the same quarter in 2008.

– A good tourist season should contribute positively to GDP growth in the third quarter, but uncertainty before the elections is likely to slow down activities towards the end of the year, thus growth for this year is expected to reach 1.1 percent, adds the Commission.

The Commission emphasizes that the recent decision on the conversion of mortgage loans from Swiss francs to euros is likely to have a small positive impact on consumption, as households continue to face pressures to reduce debt. Bank losses are expected to result in a reduction of reinvested profits, and a negative effect on public finances is anticipated. The slowdown in economic activities in emerging markets is expected to have only a limited and indirect effect on the Croatian economy. The Commission estimates a slightly slower growth of goods exports, at 4.9 percent in 2016 and 5.6 percent in 2017.

The Commission estimates the growth of goods and services exports at 8.8 percent this year, up from last year’s 6.3 percent. Next year, total exports are expected to grow by 4.1 percent, and by 4.5 percent in 2017. Imports are expected to grow by 7.2 percent this year, by 4.1 percent next year, and by 4.6 percent in 2017. The Commission forecasts a slight decline in the unemployment rate, from last year’s 17.3 percent to 16.2 percent this year, to 15.6 percent next year, and to 14.7 percent in 2017.

The budget deficit is expected to decrease from last year’s 5.6 percent of GDP to 4.9 percent this year, to 4.7 percent next year, and to 4.1 percent in 2017. Public debt, according to the Commission’s estimates, is expected to rise to 89.2 percent of GDP by the end of this year, could reach 91.7 percent next year, and 92.9 percent of GDP in 2017.

At the same time, the European Bank for Reconstruction and Development (EBRD) has raised its growth forecast for the Croatian economy for 2015 to 0.9 percent, and confirmed the existing forecast of a 0.5 percent growth for next year, as shown in the regional forecasts published on Thursday.