The Commission Expects Further Growth in Personal Consumption and Wages for Croatia

The European Commission expects a growth of Croatia’s gross domestic product (GDP) of 2.8 percent this year, the same estimate it made three months ago, with personal consumption remaining the main driver of growth, while the largest risk continues to be the restructuring of Agrokor.

In the interim winter forecasts, published on Wednesday, the Commission also estimates that economic growth in 2017 will amount to 3.2 percent, the same as it expected in the autumn forecasts.

The data on GDP growth for the entire year of 2017 will be published by the Croatian Bureau of Statistics (DZS) at the end of this month, and in the first three quarters of last year, the economy grew by an average of about 3 percent.

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The Commission, however, predicts economic growth of 2.7 percent for 2019. At this pace of recovery, the Croatian economy will return to pre-crisis levels in 2019, the Commission states.

Following a recent data revision, the real GDP growth in 2016 was increased by 0.3 percentage points to 3.2 percent, “and this growth rate is likely to be maintained in 2017, given that economic activities in the first three quarters were strong,” the Commission notes.

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However, “some indicators suggest a slowdown in the fourth quarter. A slower pace in the fourth quarter is likely to carry over into 2018,” the Commission estimates.

This is the fourth year in which the Croatian economy continues to recover, and the Commission states that this recovery remains solid and broadly based.

Wages are expected to continue to rise

“Personal consumption remains the main driver of growth, and the growth of wages and employment increases disposable income and consumer confidence. Last year, the recovery of investments was limited by the crisis in the food and retail giant Agrokor. Nevertheless, an investment recovery is expected, given the growth in credit activity in the corporate sector, although the outcome of the operational and financial restructuring of Agrokor still poses risks,” the Commission states.

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Indicators for 2017 point to yet another record tourist season, and exports of goods have also performed well.

“Overall, net exports are expected to contribute to growth as strong domestic demand stimulates imports. Employment is steadily increasing, while a slowdown in the previously record sharp decline in unemployment is expected in line with the anticipated slowdown in migrant outflows,” says the Commission.

Wages are expected to continue to rise, given the worsening conditions in the labor market, especially in sectors where there is a labor shortage and the rise in wages in the public sector.

Additional inflationary pressure is expected from energy prices. Inflation according to the harmonized index of consumer prices (HICP) reached 1.3 percent last year, and inflation is expected to continue rising, by 1.6 percent this year and 1.7 percent next year.

The EC’s estimate aligns with the estimates of other institutions

Most domestic and foreign analysts also expect a slowdown in economic growth this year compared to last year.

Thus, the Croatian National Bank (HNB) estimates that GDP will grow by 2.9 percent, while the International Monetary Fund (IMF) expects growth of 2.8 percent, and the World Bank 2.6 percent.

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The most optimistic are analysts from Addiko Bank, who expect economic growth of 3 percent, while Ersta Bank estimates growth at 2.8 percent, and analysts from Raiffeisenbank Austria (RBA) at 2.3 percent.

The government, on the other hand, based this year’s budget on an estimated economic growth of 2.9 percent.

Growth of the EU economy by 2.3 percent

The Commission predicts that the economy in the EU28 will grow by 2.3 percent this year and 2 percent next year, and the same estimates apply to the eurozone.

In these interim winter estimates, the Commission also publishes forecasts for the EU27 for the first time, excluding the United Kingdom. The economy in the EU27 is expected to grow by 2.5 percent this year and 2.1 percent next year.

By member states, Malta is expected to have the highest growth at 5.6 percent, followed by Romania at 4.5 percent, Ireland at 4.4 percent, Slovenia and Poland at 4.2 percent each. The slowest growth is expected for the British economy at 1.4 percent, followed by Italy at 1.5 percent and Belgium at 1.8 percent.

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The Commission begins publishing interim winter forecasts from this year. From now on, the Commission will publish twice a year – spring and autumn forecasts – with all macroeconomic data, and twice a year in February and July, it will publish interim forecasts as supplements to the spring and autumn forecasts.

This edition of forecasts is a supplement to the autumn forecasts published on November 9 of last year. The interim forecasts contain much less data, only estimates of annual and quarterly GDP growth and the inflation rate.