Bank Economists Raise GDP Growth Estimate for 2016 to 1.3 Percent

The chief economists of the six largest Croatian banks, gathered in the Club of Chief Economists at the Croatian Banking Association (HUB), have raised their estimate of the growth rate of the Croatian economy for this year to 1.3 percent, they reported on Friday from HUB.

The initial estimate by the six banking economists for 2016, from November last year, was 0.9 percent, and HUB states that expectations have improved in the meantime, with their average expected growth rate for this year now at 1.3 percent. Three economists expect growth at a rate of 1.5 percent, one at 1.2 percent, while two remain consistent pessimists, expecting growth of one percent.

The improved estimates are not surprising, as current statistics and revisions of institutional forecasts from a year ago indicate an improvement in economic prospects, say HUB, but they add that analysts in banks “consistently take a more cautious stance on the forecasting spectrum.”

They also remind that the IMF recently increased its expected real GDP growth for Croatia from 1 to 1.9 percent in its spring economic forecasts, bringing it closer to the even more optimistic winter forecast of the European Commission, which will be revised in May.

The causes of caution in the estimates are found by bank economists in the movement of real government consumption, specifically less activity on the expenditure side of the state budget after, as they say, a “deadlock” due to temporary budget financing in the first quarter and the slow ramp-up of the new government. However, they emphasize from HUB that the largest part of the deviation compared to other forecasts is related to the pessimism of banking analysts regarding the speed of recovery of personal consumption.

The expected growth, slower than government expectations, is reflected in the forecast of the budget deficit, which is slightly higher than government expectations. While the government expects a deficit-to-GDP ratio of 3 percent or less, the average estimate of the six economists indicates a deficit of 3.6 percent, which, they warn, could lead to a public debt-to-GDP ratio of 87.3 percent by the end of the year.

Among other things, the HUB economists also expect that the unemployment rate will continue to decrease this year to an annual average of around 16 percent, and they forecast a continuation of deflation at an average rate of 0.5 percent. They also expect a continuation of the surplus period on the current account of the balance of payments and the maintenance of the external debt-to-GDP ratio at the current level, due to relatively optimistic expectations for export growth at rates higher than the growth rates of imports of goods and services.

“The European Commission recently published data that the long-term sustainable potential growth rate of real GDP in Croatia is less than 1 percent. In light of this information, the differences among individual forecasts seem less significant than the fact that they are currently above the potential growth rate,” conclude the economists of the largest Croatian banks.