Analysts consider EC forecast of GDP growth optimistic

The European Commission on Thursday revised upward its outlook of Croatia's growth in 2016 from a previous 1.4% to 2.1%, which some domestic analysts consider to be an optimistic forecast, but they agree that public debt might grow at a slower rate.

The European Commission on Thursday released its Winter Economic Forecast in which it estimates that Croatia's Gross Domestic Product (GDP) growth last year could be higher than initially expected and could be 1.8%, and that this year growth could gain ground and exceed 2%.

"The EC's estimates of GDP growth are optimistic. That is encouraging for Croatia, however, it is significantly above the current consensus among analysts and our forecasts. We still expect a growth rate of 1% because we simply want to see what direction the government will take in 2016," said Zrinka Zivkovic-Matijevic of Raiffeisenbank Austria.

A growth rate of 2.1% would put Croatia above the EU average considering that, according to the EC estimates, GDP in the EU this year could increase by 1.9% and in the eurozone by 1.7%. "We are still lagging behind the EU while the new figures indicate that we will be above the average. It's not unrealistic even though it is optimistic," she said.

The EC estimates that domestic demand will continue to be the main driver of growth, with better conditions on the labour market supporting household consumption.

The EC forecasts that employment this year will grow by 1.3% and by 1.5% in 2017. On the other hand, unemployment this year is expected to drop to 15.1% and to 13.8% in 2017. "Our forecasts are a little more conservative with regard to the labour market and hence slightly more conservative with regard to its contribution to personal consumption. We would like to see GDP growth boosted by investments and exports, which would reflect on personal consumption. The precondition for that is a better investment climate and that is why we are waiting for the government's first moves," Zivkovic-Matijevic said.

Economic analyst Damir Novotny too expects positive trends to continue. "They are continuing at their own pace. Unfortunately, these aren't the result of government policies. The real hero here is the private sector which has done most of the work," Novotny said.

He believes that economic growth will continue because consumption has been recovering, however, growth will not be sufficient due to the high public and foreign debt.

"A growth rate of 2% in fact is leading us toward stagnation because we should have a growth rate of 3% particularly considering positive trends in Europe's economy. I think that radical, resolute strategic measures are required to accelerate growth so that we can achieve a growth rate of 3%, which is the case in all eastern European countries," Novotny concluded.

Commenting on the latest EC forecast, the head of the Croatian Chamber of Commerce (HGK), Luka Burilović, said that he was pleased that Croatia was no longer among countries with the lowest growth outlook in the EU, while the head of the Croatian Employers' Association (HUP), Davor Majetic, called on the government to start with reforms as soon as possible so that the growth could be even higher.

Last update: Thu, 04/02/2016 - 17:54

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