Good Results: Industrial Production Increased by 1.2 Percent, and Consumption by 4.5 Percent

Industrial production in Croatia increased by 1.2 percent year-on-year in July of this year, marking the 18th consecutive month of growth. With favorable trends in foreign demand continuing, analysts from Raiffeisenbank Austria (RBA) expect this growth to continue throughout the year, ultimately resulting in a positive contribution to GDP growth.

The Croatian Bureau of Statistics (DZS) announced on Friday that industrial production, according to seasonally adjusted data, fell by 0.5 percent compared to the previous month, while it increased by 1.2 percent compared to July of last year.

This is a slower growth rate than the previous month, when production increased by 4.1 percent year-on-year. Furthermore, this marks the 18th consecutive month of year-on-year growth in industrial production, a trend not seen since 2007, two years before a six-year recession.

In July, energy production saw the largest increase, rising by 7.3 percent year-on-year, followed by the production of non-durable goods for general consumption, which grew by 3.2 percent.

The production of intermediate goods strengthened by 1.1 percent year-on-year, while the production of durable goods for general consumption fell by 9.5 percent, and capital goods by 2.8 percent.

On a monthly basis, according to seasonally and calendar-adjusted data, after a slight increase in June, July recorded a negative rate of 0.5 percent, primarily due to a decline in production in the categories of capital goods, which fell by 8.9 percent, and durable goods for general consumption, which fell by 4.4 percent.

In the first seven months of this year, industrial production increased by 4.6 percent compared to the same period last year.

“Positive trends are likely a result of the recovery of foreign demand in countries that are key trading partners, as well as the decline in inventories observed last year,” analysts at RBA point out.

Looking at the GIG categories, the annual growth of total industrial production from January to the end of July was supported by growth in all categories except for durable goods for general consumption, which recorded a decline of 1.3 percent. Growth in the energy category was 2.4 percent, intermediate goods 3.8 percent, and non-durable goods for general consumption 5.3 percent.

RBA also notes that it is particularly encouraging that the highest annual growth rate was achieved in the category of capital goods, which, despite a July decline of 2.8 percent year-on-year, recorded an increase of 8.2 percent in the first seven months compared to the same period in 2015.

According to NKD, the July growth of 1.5 percent year-on-year in the manufacturing industry, which accounts for nearly 78 percent of total industrial production, positively contributed to the overall growth in the first seven months of this year at a rate of 5.3 percent.

During the same period, food products, which account for nearly 14 percent of total industrial production, achieved an annual growth rate of 6.2 percent. At the same time, support for the overall growth of industrial production volume also came from the mining and quarrying category, which increased by 0.5 percent in the first seven months, while the category of electricity, gas, steam, and air conditioning supply also recorded a growth of 2.3 percent year-on-year.

“With the expected continuation of favorable trends in foreign demand, we anticipate continued growth in industrial production throughout the year, which will ultimately result in a positive contribution to GDP growth,” conclude RBA.

Consumption Also Increased

In Croatia, retail trade turnover in July of this year increased by 4.5 percent year-on-year, marking the 23rd consecutive month of consumption growth, and significantly faster than the previous month.

The Croatian Bureau of Statistics (DZS) announced on Friday its first estimate indicating that retail trade turnover, achieved by all business entities engaged in this activity regardless of their primary activity, nominally increased by 2 percent and real growth was 4.5 percent compared to the same month last year.

This is a faster growth rate than the previous month, when consumption increased by 2.8 percent year-on-year.

In July, retail trade turnover increased for the 23rd consecutive month, a trend not recorded since DZS began tracking these data. During this entire period, a higher growth rate in retail trade turnover was only recorded in July 2015, when turnover increased by 4.6 percent year-on-year.

Analysts from Raiffeisenbank Austria (RBA) emphasize that despite a relatively high base from last year, this confirms the uninterrupted series of positive annual rates dating back to September 2014.

“Undoubtedly, the continuation of good indicators is strongly supported by solid performances in tourism, as well as seasonal improvements in the labor market,” they assess in their commentary.

According to seasonally and calendar-adjusted indices, retail trade turnover in July recorded a real monthly growth of 2 percent and a nominal growth of 1.6 percent.

“The continuation of positive trends in retail trade turnover was preceded by improvements in employment indicators: according to the latest data from HZMO, in July the number of insured persons, i.e., contributors to pension insurance, increased to 1.504 million, which is 0.4 percent higher compared to the previous month. This marks the sixth consecutive month of growth in the number of insured persons on a monthly basis, and the trend of annual growth, which has been continuously present since March of last year, has also been confirmed,” say analysts at RBA.

They add that the increase in employment is largely a result of a higher number of employees in tourism, as indicated by DZS data on the number of employees in accommodation services and food preparation and serving, where a relatively strong monthly growth of 8.8 percent was recorded in July.

“Positive trends in employment, along with the growth of tourism revenues, positively affect higher disposable income and retail trade turnover. Consequently, the desired effects will also reflect on personal consumption as a main component of GDP, contributing to the continued positive contribution to GDP growth in the third quarter of this year. In the coming months, additional support for the real growth of retail trade turnover will also come from the absence of positive annual inflation rates,” conclude RBA.

According to the latest data from DZS, consumer prices in Croatia fell by 1.5 percent year-on-year in July of this year, continuing the deflationary trend for the third consecutive year.