Croatian GDP Grows Over 2 Percent for the First Time Since 2008?

Macroeconomists estimate that the Croatian economy, thanks to the strengthening of consumption, exports, and investments, grew by more than 2 percent in the third quarter, the fastest since the second quarter of the pre-recession year 2008.

The Croatian Bureau of Statistics (DZS) will publish the first estimate of gross domestic product (GDP) for the third quarter at the end of next week, and eight macroeconomists who participated in a Hina survey estimate on average that the economy grew by 2.2 percent compared to the same period last year. All expect growth between 1.6 and 3 percent. If their estimates prove accurate, it would mark the fourth consecutive quarter of GDP growth, and faster than in the previous quarter, when the economy strengthened by 1.2 percent year-on-year. It would also be the largest economic growth since the second quarter of the pre-recession year 2008, when GDP jumped by 2.9 percent year-on-year.

Tax Changes and Tourism Stimulate Consumption

Macroeconomists state that the growth of the economy is, among other things, due to the strengthening of personal consumption, the largest component of GDP. This is indicated by the growth of retail trade turnover in the third quarter, according to seasonally adjusted data, by approximately 2.2 percent compared to the same period last year.

– A strong tourist season, lower prices of oil derivatives, and tax relief on income have improved the disposable income of the population, which implies a growth in personal consumption of about 1 percent annually, says one of the macroeconomists.

In September, retail turnover, according to DZS data, increased for the 14th consecutive month, which has not been recorded since 2007, two years before the recession. The growth of exports also positively affects the economy. According to DZS data, Croatia exported goods worth 64 billion kuna in the first nine months, which is 10.5 percent more than in the same period last year. This is primarily due to the growth of the European Union economy, Croatia’s largest foreign trade partner. Imports simultaneously increased by 5.5 percent, reaching 104 billion kuna.

– An important factor for growth remains the movement of foreign demand, with significant growth in commodity exports continuing, and good tourist results achieved.

Continuation of Investment Growth Expected

The strengthening of industrial production, which has been continuously growing for eight consecutive months, should also positively impact GDP.

– We expect a dominant contribution to growth from tourism and positive trends in commodity exchange, as well as an acceleration of the positive trend in industry, it is stated in the survey.

From July to September, industrial production grew by about 4 percent compared to the same period last year. In September alone, it jumped by 5.4 percent, marking its largest annual increase since April 2008. Most macroeconomists also expect a continuation of growth in gross investments in fixed capital, which increased by 0.8 percent year-on-year in the second quarter, for the first time since the third quarter of 2013.

– We expect confirmation of the trend of stabilization of investment activity, says one of the macroeconomists.

A positive contribution to GDP is also expected from government consumption, which grew by 0.4 percent year-on-year in the second quarter.

– In addition to the positive contribution of personal consumption, we expect to maintain a positive contribution from government consumption.

Increased GDP Growth Estimates for 2015

Thanks to positive developments in the first nine months of this year, all macroeconomists have raised their estimates for economic growth for the entire year of 2015. Thus, eight macroeconomists estimate on average that GDP will grow by about 1 percent this year, while three months ago they expected growth of 0.5 percent. Their growth estimates range from 1 to 1.2 percent.

Recently, the Croatian National Bank also raised its estimate for economic growth this year from the previous 0.5 to 1.2 percent. The European Commission, on the other hand, raised its forecast for Croatian GDP growth in the autumn estimates from 0.3 to 1.1 percent, while the International Monetary Fund estimates that the economy will grow by 0.8 percent, having previously expected growth of 0.5 percent. The European Bank for Reconstruction and Development raised its estimate for Croatian GDP growth from the previous 0.5 to 0.9 percent, while analysts from the Economic Institute Zagreb forecast a slightly milder growth of 0.5 percent.

All indications suggest that 2015 will be the first year of growth for the Croatian economy after six years of recession.