The Croatian economy grew by 2 percent year-on-year in the fourth quarter of last year, marking the slowest growth since the second quarter of 2015, a result of a slight slowdown in personal consumption growth and a more significant than expected slowdown in investment growth.
The Croatian Bureau of Statistics (DZS) published its first estimate on Wednesday, indicating that the gross domestic product (GDP) in the last quarter of last year increased by 2 percent compared to the same period a year earlier.
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This marks the 14th consecutive quarter of GDP growth, but slower than in the previous quarter, when the economy strengthened by 3.3 percent, and also the slowest growth since the second quarter of 2015, when growth was 1.9 percent.
This is also below expectations. Eight macroeconomists who participated in a Hina survey estimated on average that the economy grew by 2.7 percent year-on-year.
Their growth estimates ranged from 2.1 to 3.2 percent.
Growth in 2017 slowed to 2.8 percent
In the entire year of 2017, the Croatian economy grew by 2.8 percent, slower compared to the 3.2 percent growth in 2016 and below expectations.
In a Hina survey three months ago, eight macroeconomists expected an average GDP growth of 3 percent.
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The European Commission recently published an estimate that the growth of the Croatian economy in 2017 should amount to 3.2 percent, while the Croatian National Bank (HNB) expected growth of 3.1 percent.
The government, on the other hand, based last year’s budget on an estimated economic growth of 3.2 percent.
Kovač: Slower dynamics of investments
“We expected an economic growth rate in the last quarter of last year of 3 percent, so from that perspective, 2 percent is disappointing,” said Alen Kovač, a macroeconomist at Erste Bank.
Looking at the structure of GDP, Kovač emphasizes that the slight slowdown in personal consumption growth was expected, but that the slowdown in investment growth was more significant than forecasts.
In the fourth quarter, household consumption growth was 3.4 percent year-on-year, while in the previous quarter, growth was 3.7 percent.
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Investment growth slowed even more sharply to 1.7 percent year-on-year, while in the previous quarter it was 3.4 percent.
“The reason for the shortfall compared to expectations is definitely the slower dynamics of investments and unfavorable net exports, primarily due to stronger dynamics on the import side, which ultimately resulted in a lower growth rate,” says Kovač.
Exports of goods and services increased by 3.6 percent year-on-year in the fourth quarter of last year, while imports of goods and services strengthened by 6 percent.
“The growth of exports was in line with expectations,” says Kovač, but he highlights a somewhat stronger pressure on the import side, noting the 16 percent year-on-year growth in service imports.
Signalitics: The weakest growth since the second quarter of 2015.
“In line with our expectations, GDP growth recorded a slowdown in the last quarter of 2017 to 2 percent year-on-year. This is the weakest growth since the second quarter of 2015,” says Tajana Štriga, a macroeconomist from independent research firm Signalitics.
However, she believes that the slowdown in growth in the fourth quarter of 2017 is of a temporary nature.
“We expect solid GDP growth in 2018 around this year’s levels due to the expansionary monetary policy of the HNB, recovery of credit activity, and low inflationary pressures that increase citizens’ disposable income,” says Štriga.
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Furthermore, she notes that she expects the external environment to continue supporting domestic growth, with the European Central Bank recently raising its eurozone growth projections for the current year by 0.5 percentage points to 2.3 percent.
At the same time, investment growth in Croatia will be supported by a stronger inflow of funds from EU funds, last year’s high earnings of companies, and expected investments of 940 million euros in tourism, which is a 15 percent increase compared to estimated investments in 2017.
Štriga does not expect a stronger negative impact from Agrokor’s restructuring in the short term, while in the long term, she believes it could positively reflect on the domestic economy by encouraging competitiveness and easier access to financing sources for other market players.
“Additionally, Agrokor’s high use of obligations to suppliers as short-term financing has hindered liquidity flow in the system and harmed the development of small and medium-sized enterprises,” says Štriga.
Alen Kovač, on the other hand, expects an economic growth rate of 2.8 percent this year, but it is possible that he will lower it.
“In general, recently we have seen somewhat more pronounced negative risks, so we will likely revise the forecast slightly downward in the next quarter,” says Kovač, noting that he sees this year’s growth rate in the range of 2.5 to 3 percent.
Slower growth compared to the EU average
According to seasonally adjusted data, Croatian GDP strengthened by 0.1 percent in the fourth quarter compared to the previous quarter, while it increased by 2.2 percent compared to the fourth quarter of 2016.
Thus, the Croatian economy grew at a slower quarterly rate compared to the EU average, where a growth of 0.6 percent was recorded in the last quarter of last year.
On an annual basis, Croatian GDP also grew slower, as the average growth in the EU was 2.6 percent.
