Endless day. It seems that for some time now, regardless of the election of a new government, we are stuck in this film. A new awakening, a new day, a new opportunity. In Croatia, a new day, old views, old solutions, old lives. Statistics only feebly show that we have looked towards dawn.
On well-trodden foundations. Just in case. So nothing new will happen even in 2016. Moreover, it will be somewhat less intense, at least if we consider GDP growth. Because we will be fighting for the salvation of public finances. This is how most analysts (and anyone with a shred of sense) estimate.
Four main areas
Hrvoje Stojić, the chief economist of Hypo Bank, says that in the next two years we will deal with four main areas: internal devaluation (fall in wages, reduction of business taxes, abolition of parafiscal charges…), measures on the supply side of the economy (further flexibilization of the labor market and the market for goods and services, restructuring of public enterprises, reform of public administration), bankruptcies, and the development of new models for resolving non-performing loans (for example, with tax compensation for banks that resolve them in their balance sheets, tax incentives for investments) and the sector of small and medium-sized enterprises, which need new and stronger incentives to engage in the economy (including through public procurement). Because of all this, Stojić believes that GDP will be half of what it is this year, around 0.5 percent, with a slowdown in all components, especially exports.
Zrinka Živković Matijević, the chief analyst at Raiffeisen Bank, states that the recovery of the economy, with a slightly lower rate, will continue in the last quarter of this year, with an annual growth of around 1.5 percent, confirming that Croatia has managed to emerge from the crisis after six years of recession and a loss of more than 12 percent of real GDP.
– The risk that 2016 will bring unpleasant surprises stems from the need for stronger fiscal consolidation, from potential changes in financial markets, and from lower growth of EU member states than expected. The export of goods and services should again be the main generator of growth next year. Namely, behind the macroeconomic movements, market restructuring is indeed taking place, with the adjustment being more pronounced in the private sector, especially among small enterprises, which are increasingly turning to the export market. Their adjustment is hindered by excessive tax burdens, a lack of long-term financing sources, high administrative barriers, and the inability of the public sector to become simpler and more efficient. With such limitations, the export sector remains relatively small and insufficiently competitive to generate higher growth rates. It also remains a fact that we still have a relatively high import component in exported products and that most activities are in deficit, meaning that in almost all activities of NKD, the value of goods imports exceeds the value of exports, explains Živković Matijević.
Zdeslav Šantić, the chief economic writer at Splitska Bank, also warns of ‘mines’. Despite good trends this year, we are entering the new year with a great deal of caution.
– Political risks are significantly higher after the results of the parliamentary elections, with a great deal of uncertainty regarding the possibility of forming a stable government that could implement fiscal adjustment and accelerate structural reforms. Also, previous experiences have shown that economic activity slows down in the period immediately following parliamentary elections, which can also be explained by the still significant influence of the public sector on overall economic movements. Likewise, during the next year, we expect an increase in pressure from EU institutions on fiscal policy makers to move towards achieving the goals set by the Excessive Deficit Procedure and the European Semester. It is likely that any fiscal adjustment will also require savings on the wage mass in the public sector and part of the social transfers to households, and thus lead to a decline in household demand. Of course, fiscal adjustment should also result in a negative contribution of state consumption to GDP movement. At the same time, a positive contribution from exports, although somewhat weaker than in 2015, should be maintained throughout the next year. Slightly positive growth rates are also expected in the segment of capital investments, estimates Šantić.
