The Zagreb Institute of Economics (EIZ) estimates that after six years of falling, real Gross Domestic Product (GDP) will this year record a positive growth rate of 1.5% and a growth of 1.1% in 2016, it was said on Friday at a presentation of the latest issue of the Croatian Economic Outlook Quarterly.

EIZ upgraded its previous estimate by one percentage point compared with figures released in September, when EIZ forecast a GDP growth of 0.5% on the year. EIZ also slightly increased its September outlook on real GDP growth in 2016 from 1.1% to 1.3%, adding that GDP could grow by 1.5% again in 2017.

EIZ's new outlook of economic growth is based on favourable indicators for Q3 as well as the monthly CEIZ business cycle indicator and data concerning industrial production and retail for October, EIZ Director Dubravka Jurlina Alibegovic said.

Outlook editor Marina Tkalec added that expectations for 2015 are mostly the consequence of a strong positive contribution of real household consumption, which is recovering thanks to tax reliefs at the start of the year and could grow this year by about 0.9%. In addition, the lower cost of fuel and strong tourism spending has had a positive effect.

State expenditure, according to EIZ analyses, could increase this year by 0.4% despite pressure by the European Commission for spending to be reduced as part of the Excessive Deficit Procedure (EDP). It seems that the election year and the growth in tax revenue have increased state expenditure, Tkalec said.

Investments, which Tkalec said touched rock bottom in 2014, this year have recovered rapidly and, considering the better absorption of EU funding and indications of recovery in the construction sector, they could grow by over 1%.

This year's favourable tourism season and the continuation of higher rates of exports than imports will this year too lead to a positive balance of payments of 0.8% of GDP.

EIZ estimates that in the next two years investments will continue to grow along with household consumption, with a slight reduction in state expenditure resulting from fiscal consolidation, while foreign trade will continue to positively contribute to GDP growth, but with somewhat lower rates of exports and imports.

According to EIZ, if no significant expenditure occurs before the year's end, budget deficit this year could be 4.5% of GDP. A reduction in the deficit, EIZ estimates, will occur in 2016 and 2017 to 4% and 3.5% respectively.

EIZ doesn't expect any vital changes in monetary policies. EIZ notes that liquidity is high, however lending is not growing and banks are burdened with the cost of converting loans pegged to the Swiss franc.

An analysis of the labour market indicates that unemployment this year could be around 17.7% and in 2016 it could fall to 17.2% and to 16.8% in 2017, the Outlook says, noting that at the same time the rate of employment was dropping.

 

(1 EUR = 7.6 HRK)

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