Record Decline Expected in Croatian Economy in the Second Quarter

The State Bureau of Statistics will publish a report on Gross Domestic Product (GDP) on Friday, which analysts agree will show that the Croatian economy recorded a record decline in the second quarter due to the coronavirus crisis. Six analysts who participated in a Hina survey expect an average GDP decline of 13.9 percent year-on-year.

Their estimates of the decline range widely from 12 to 17 percent. This will be the first decline in the economy since mid-2014 and the largest since 2000, when the Bureau of Statistics began tracking these data. The largest decline to date of 8.8 percent was recorded in the first quarter of 2009, at the onset of the global financial crisis.

Restrictive measures paralyzed the economy

The sharp decline in the economy in the second quarter is a consequence of the coronavirus pandemic and restrictive measures aimed at curbing the virus, which paralyzed economic activity from the second half of March to the end of April.

In the first quarter, the domestic economy managed to avoid a decline, but GDP growth slowed to only 0.4 percent year-on-year, which was its slowest growth in the last six years. In the second quarter, however, the impact of the coronavirus crisis was strong.

„Partial to complete suspension of economic activities, in response to curbing the COVID-19 pandemic, strongly affected the deterioration of the producer and consumer confidence index, with simultaneous high rates of decline in almost all sectors, from retail to a range of industrial activities”, notes one of the analysts in the Hina survey.

'Lockdown' caused a record decline in personal consumption, the largest component of GDP. Data from the Bureau of Statistics show that retail trade turnover in the second quarter plummeted by about 13 percent compared to the same period last year.

„Based on retail trade trends, it can be concluded that personal consumption has fallen by about 15 percent, and the data also indicate a decline in goods exports of 13.5 percent and imports of 22.8 percent,” notes one of the analysts.

International trade sharply declined in the second quarter due to the lockdown of economic activities and traffic to curb the spread of the coronavirus. In addition to exports and imports, industrial production also sharply fell in the second quarter, by 8.4 percent compared to the same period last year.

„It is quite difficult to be precise in estimates, but it is clear that all components of GDP recorded a decline, except for government consumption,” notes one of the analysts in the Hina survey. This year, the positive impact of tourism on the economy was also absent due to restrictions on the movement of people in most countries of the world.

Thus, in Croatia, in the first six months of this year, commercial accommodation facilities recorded 1.5 million tourist arrivals and 5.2 million overnight stays, which is about 77 percent less than in the same period last year.

The economy stepped into recession

However, while tourism is not crucial for consumption and GDP movement in the first half of the year, it is key in the third quarter, given the summer tourist season. So far, it has been shown that the tourist season is significantly better than expected, but expectations were very low – about 30 percent of last year’s traffic.

The fact is that tourist traffic will be significantly lower than in the same period last year, so a decline in the economy is also expected in the third quarter. This is especially true as further declines in goods exports and imports are expected, given the recession in Croatia’s largest trading partners Italy, Germany…

According to Eurostat data, in the second quarter, the GDP of the European Union fell by a record 14 percent year-on-year, with the Italian economy falling by more than 17 percent and the German economy by 11.7 percent. For all these reasons, it is clear that the Croatian economy will also plunge into recession, defined as a decline in GDP for two consecutive quarters.

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