The European Commission on Thursday upgraded Croatia's economic growth forecast for this year to 1.1 percent from May's forecast of 0.3%, but called for implementing structural reforms in order to stop public debt growth.
The Commission today published its autumn economic forecasts for 2015, 2016 and 2017, including data on GDP trends, inflation, employment, and the budgetary deficits and public debts of European Union member states, membership candidates and main trade partners.
After growing 1.1% this year, Croatia's economy is estimated to grow 1.4% in 2016 and 1.7% in 2017.
Today's forecasts show that Croatia's economy is set to grow after six years of recession, said European Commissioner for the Euro and Social Dialogue Valdis Dombrovskis. The Commission's forecasts envisage a 1.1% GDP growth this year, with an acceleration to 1.7% in 2017 thanks to higher external demand from Croatia's main trade partners and higher domestic demand, he added.
As global economy is slowing down, it is of the utmost importance to reinforce the economic foundations through structural reforms and by reducing the very high public debt which, without resolute action, could reach almost 93% of GDP in 2017, Dombrovskis said.
The EU economy is set to grow 1.9% this year, after 1.4% growth in 2014. The Commission forecasts that GDP will grow in all member states except Greece, where it is predicted to contract 1.4%. Ireland is set to have the highest growth (6%).
"After six years of recession, Croatia’s economy is finally set to start growing again in 2015, by 1.1%, as the contraction in domestic demand comes to a halt and exports continue to grow buoyantly. Growth is forecast to accelerate and reach 1.7% in 2017, on the back of greater absorption of EU funds," the Commission said.
The years-long crisis had a big effect on the Croatian economy, which in the second quarter of 2015 was 12% weaker than in Q2 2008.
"A good tourist season is set to contribute positively to GDP growth in the third quarter, but uncertainties ahead of the elections are likely to slow down activity towards the end of the year. Annual GDP growth in 2015 as a whole is expected to reach 1.1%," the Commission said.
"The recent decision to convert CHF mortgage loans into euros is likely to have a minor positive impact on consumption, as households still face pressures to reduce their debt levels. Banks’ losses are set to result in an imputed negative flow of reinvested earnings... while a negative impact is expected on public finances," the Commission said.
"The slowdown in emerging markets is expected to have only a limited and indirect effect on the Croatian economy. The growth in goods exports is forecast to slow somewhat in 2016 and 2017, but remain at a solid 4.9% and 5.6%, respectively," the Commission said.
Exports of goods and services are projected to grow 8.8% this year from last year's 6.3%. In 2016, exports are projected at 4.1% and in 2017 at 4.5%. Imports are set to grow 7.2% this year, 4.1% in 2016 and 4.6% in 2017.
Unemployment is set to fall to 16.2% this year from last year's 17.3%, to 15.6% in 2016 and 14.7% in 2017.
"The general government deficit is projected to decrease to 4.7% of GDP in 2016 and 4.1% of GDP in 2017," the Commission said, while the general government debt-to-GDP ratio is projected to continue rising from 89.2% in 2015 to 91.7% in 2016 and to 92.9% in 2017.