The Croatian Chamber of Commerce (HGK) said on Thursday that the latest forecasts by the European Commission on Croatia's economic growth were as expected but that that growth was not sufficient if Croatia wanted to achieve the EU's development average or restore the situation from the pre-crisis year 2008.
The EC on Thursday revised upward its forecast of Croatia's growth in 2015 to 1.1% from 0.3%, forecast in May, but it called for implementing structural reforms so as to stop the growth of public debt. According to the EC, in 2016 the growth of Gross Domestic Product (GDP) should pick up to 1.4%, and in 2017 to 1.7%.
"The EC forecasts are as expected and reflect the current situation on the global market and in the Croatian economy. However, it is a fact that such growth is insufficient for Croatia to achieve faster the EU development average or even restore the development level of the pre-crisis year 2008. Also, the latest estimates show that Croatia is among the EU members with the smallest GDP growth in 2015. More precisely, GDP is expected to drop only in Greece and lower growth rates are expected only for Italy, Austria and Finland," says the HGK.
The EC has estimated that Croatia's budget deficit will fall from last year's 5.6% of GDP to 4.9% this year, to 4.7% of GDP in 2016, and to 4.1% of GDP in 2017. Public debt is expected to grow to 89.2% of GDP by the end of this year, to 91.7% in 2016 and to 92.9% of GDP in 2017.
The HGK notes that in terms of the share of the general government in the budget deficit, Croatia is projected to perform the poorest in the EU as of 2015.
"In the estimates for the three years, we perform worse than Spain and Greece, which are right behind us, and what is especially worrying is the predicted slow reduction of the deficit. The deficit-to-GDP ratio in the EU is expected to fall by 0.5 percentage points in 2016, while in Croatia it is expected to drop by only 0.2 percentage points, from 4.9% in 2015 to 4.7% of GDP. In other words, Croatia's budget deficit this year is 2.4 percentage points more unfavourable than the EU average, it will be 2.7 percentage points lower in 2016 and 2.5 percentage points lower in 2017," the HGK says.
It notes that the insufficient fiscal consolidation was resulting in the general government debt rising to levels that are unsustainable in the long run.
"As for the growth of the public debt's share in GDP, in the next two years only Latvia and Greece will be in a worse situation than Croatia, with the share of public debt in Latvia being currently a low 38.3%. At the same time, in the EU and in the euro area the share of the general government debt in GDP is expected to decrease. The EC projections confirm that Croatia's fiscal position is difficult but do not forecast progress that could help the country improve its unenviable position among EU countries," says the HGK.