Cooling of the Croatian economy will impact some stocks on the domestic stock exchange

The Croatian economy is cooling, as economists predicted, and this cooling could also be felt in the demand for Croatian stocks, which have been rising for the fourth consecutive year. The State Bureau of Statistics (DZS) published on Thursday the first estimate indicating that GDP in the second quarter strengthened by 1.7 percent compared to the same period last year. Given that the economy strengthened by 2.3 percent in the first quarter, the slowdown is more than noticeable.

On the other hand, on a quarterly basis, the domestic economy shows slightly more signs of life. While a slight decline in GDP of 0.1 percent was recorded in the first three months compared to the previous quarter, in the period from April to June, state statisticians recorded a growth of 0.4 percent. In the first six months, the growth of real GDP averaged 1.9 percent.

The worst result in 11 years

This result was contributed to by the weakening of several very important drivers of the domestic economy, at least in recent years. The first is the strong slowdown in personal consumption growth. After nearly stagnation in the first quarter, retail trade has now recorded a slight decline on a quarterly basis of 0.7 percent, but also a slowdown on an annual basis (from 3.1 to 0.9 percent). Since retail is a good indicator of personal consumption, it is not surprising that the annual growth of this important component of GDP slowed from 2.6 percent to a modest 0.5 percent, the lowest since 2015. if we do not take into account the pandemic and lockdown in 2020, analysts from Raiffeisen Bank state.

– In addition, real growth is still influenced by relatively high inflationary pressures present in the second quarter of this year – states their analysis published today.

This is not the end of bad macroeconomic news. The growth of gross investments in fixed capital has also continued to slow, from 2.5 percent in the first to 1.7 percent in the second quarter, the most modest since 2021. The modest increase during this year is in line with trends in construction, where a visible (expected) slowdown compared to previous years of strong growth is noted, they observe at RBA. On the positive side, the export of goods and services achieved solid growth of three percent on an annual basis.

This item was primarily driven by stronger exports of goods (5.2 percent, after a decline of 2.3 percent in the first quarter), while the export of services slowed from 2.6 to one percent, in line with tourism trends during that period. However, this was not enough for a positive contribution to net foreign demand, analysts emphasize.

– Namely, on the wings of accelerated growth in service imports (from 4.8 to 7.8 percent), as well as stronger imports of goods (from -1.1 to 2.5 percent), total imports of goods and services increased by 3.4 percent on an annual basis (after a decline of 0.3 percent in the first quarter). The import of services also reflects the increase in purchasing power of the average household in the previous period, which affects the increase in travel of Croatian residents abroad – states the analysis. Finally, the growth of government consumption accelerated on an annual basis from 0.7 in the first to two percent in the second quarter.

Economists expect acceleration

Davor Špoljar, an analyst at Erste Bank, says that the GDP growth of 1.7 percent in the second quarter was largely in line with expectations, with personal consumption being somewhat weaker due to higher inflationary pressures, while investments remained approximately at the levels from the first quarter.

– For the entire 2026, we still expect GDP growth of around 2.1 percent, with certain negative risks to our forecasts due to global economic and geopolitical uncertainties – adds Špoljar.

Despite a somewhat modest dynamic of economic growth, RBA believes that the economy could slightly accelerate in the second half of the year. Early indicators in tourism point to positive trends at the beginning of the central part of the tourist season, data on fiscalized accounts indicate solid consumption during July and August, and consumer confidence is strengthening and remains consistently above the long-term average, driven by a record low unemployment rate and continued solid (real) wage growth. It is worth noting that in the first six months, the real growth of average net wages was three percent despite rising inflation.

In addition, RBA analysts emphasize that the constant inflow of money from the EU remains important for maintaining investment activity. Besides funds from the Multiannual Financial Framework (MFF), it is expected that the payments of the ninth and tenth tranches of the Recovery and Resilience Mechanism will ensure financing for public projects and thus continue to support construction activity, where a (expected) slowdown in growth compared to previous strong years can still be noticed, RBA reminds.

If macroeconomic statistics reflect current trends on the Zagreb Stock Exchange, there is not much optimism lately. Although the stock exchange is a mechanism that looks ahead, the semi-annual financial reports of companies published at the end of July confirmed the cooling of the economy that the DZS statistics have now numerically recorded. The CROBEX index strengthened by 13.8 percent during this year, but since the end of July, when the semi-annual results were known, it has weakened by 0.7 percent by the end of Thursday.

Growth of 15 percent

Davor Špoljar says that the slowdown in domestic demand could be most felt by producers of consumer goods, especially in the segments of discretionary and cyclical consumption, but there are relatively few such companies among the larger issuers on the ZSE, while a significant part of the consumer segment is of a defensive character.

– For industrial companies and the tourism sector, the movements of foreign demand, export markets, and the tourist season are more important, so investors in the coming months will primarily monitor early indicators of tourist consumption and foreign demand as signals for revenues and operating margins – expects Špoljar.

Reflecting on the movement of the CROBEX in the last month, Špoljar says that this should be viewed in a broader context, considering that the index achieved around 15 percent returns in the first seven months of this year, or approximately 18 percent including dividends, after annual increases above 20 percent were recorded in the previous three years.

– The summer period traditionally brings lower liquidity and fewer corporate news, and in such an environment, re-evaluating previous assumptions and valuations, as well as certain capitalization of previously achieved gains, is a normal occurrence in the market, and such phases are occasionally healthy after a longer period of strong growth – emphasizes the Erste analyst.

The market is thus waiting for autumn, which will show in which direction the stock exchange and the entire economy will go.