DZS: GDP increased by 2.8 percent

The Croatian economy grew by 2.8 percent in the second quarter compared to the same period last year, faster than in the previous quarter, primarily due to the increase in personal consumption.

The Croatian Bureau of Statistics (DZS) published its first estimate on Wednesday, indicating that the gross domestic product (GDP) increased by 2.8 percent in the second quarter compared to the same period last year. This marks the 11th consecutive quarter of GDP growth, and it is faster than in the previous quarter when the economy strengthened by 2.5 percent. However, this is slightly below expectations. Eight macroeconomists who participated in a Hina survey estimated on average that the economy grew by 3.0 percent year-on-year. Their growth estimates ranged from 2.7 to 3.4 percent.

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“The GDP growth data is largely in line with expectations, and there are no major surprises in its structure. The continuation of economic growth was suggested by the figures indicating a good trend in personal consumption,” says Alen Kovač, a macroeconomist at Erste Bank.

The largest positive contribution to GDP in the second quarter was achieved through the increase in household final consumption expenditures, according to the DZS statement.

Household consumption increased by 3.8 percent year-on-year, faster than the 3.5 percent in the previous quarter.

This consumption growth rate is “the highest since the first quarter of 2008. It should be noted that, unlike the pre-crisis period, consumption growth is not accompanied by an increase in borrowing,” analysts from Raiffeisenbank Austria (RBA) state in their commentary on the DZS report.

The strengthening of consumption following the personal income tax relief at the beginning of the year was indicated by previously published data, which shows that retail trade turnover has been growing year-on-year for 34 consecutive months, with a jump of 7.8 percent in June, the highest in the last 10 years.

Although slowed, the trend of investment growth continued

In the second quarter, the growth of gross investments in fixed capital continued for the eighth consecutive quarter. However, growth slowed to 3.2 percent from 5.4 percent in the previous quarter.

“This may be partly related to Agrokor, but on the other hand, there was quite strong investment growth in the second quarter of last year, so the base was higher. Therefore, I would say that there has been a certain slowdown in investments, but we have confirmation of their growth trend,” says Kovač.

Analysts at RBA also believe that “it is possible that the slowdown is partly supported by the postponement of investments in certain companies due to the situation around and within the Agrokor group and the effect of the base period.”

On the other hand, they note that the positive trend in the process of drawing EU funds, a modest but steady recovery in construction, and the continuation of capital investments by companies supported the continuation of positive trends in investments.

Kovač states that there are no surprises in government consumption either. In the second quarter, it increased by 1.7 percent, faster than the previous quarter when growth was 1.6 percent.

“Net exports are expected to be slightly negative, primarily due to trends in commodity exchange. We see pressure on the import side due to the recovery of the economy and somewhat stronger domestic consumption,” explains Kovač.

Exports of goods and services increased by 3.6 percent in the second quarter, slower than the 8.6 percent in the previous quarter. Meanwhile, exports of goods rose by 4.3 percent year-on-year, while imports of goods increased by 5.4 percent.

In the third quarter, tourism is in focus, and in the fourth, Agrokor

According to seasonally adjusted data from the DZS, GDP strengthened by 0.8 percent in the second quarter compared to the previous quarter, while it increased by 3.4 percent compared to the second quarter of last year.

“Economic growth has improved slightly compared to the first quarter, which confirms our expected growth rate for the entire year of just below 3 percent,” says Kovač.

He adds that he expects the continuation of positive trends in the third quarter due to tourism results, while in the fourth quarter it will be seen whether the restructuring of Agrokor will have any impact on economic growth.

“However, we do not expect significant negative pressures from that,” concludes Kovač.

RBA analysts expect a similar GDP growth rate this year.

“According to our expectations, GDP should grow at a real rate of 2.9 percent for the entire 2017, primarily supported by domestic demand, mainly household consumption and investments. The positive effects of the growth of goods and services exports will be diminished by the still high level of import dependence, so the effect of net foreign demand will also be slightly negative,” assess RBA analysts.

Growth of Croatian GDP above the EU average

The growth of Croatian GDP was also higher than the average in the European Union (EU) in the second quarter.

According to recently published seasonally adjusted data from Eurostat, the EU economy grew by 0.6 percent in that quarter compared to the previous quarter, while Croatia’s economy grew by 0.8 percent.

On a year-on-year basis, the EU economy grew by 2.3 percent, while Croatia’s economy grew by 3.4 percent.