A higher growth of Gross Domestic Product (GDP) than expected is good news by all means, analysts have said, however, they warn that the continuation of political instability could negatively affect economic trends.

The State Bureau of Statistics (DZS) on Tuesday released preliminary estimates according to which GDP increased by 2.7% in Q1 compared with the same quarter last year, which was more than expected.

Eight analysts polled by Hina forecasted an average growth of 2.4%. Their estimates ranged from 2% to 2.8%.

That is the sixth consecutive quarter that GDP has grown and this quarter it grew faster than in the preceding quarter, when it increased by 1.9%.

"GDP growth is somewhat stronger than expected with commodity exports being the main generator of growth, as is household consumption, which increased by more than three percent," the chief economist at the Societe Generale Splitska Banka, Zdeslav Santic, said.

Exports of commodities and services increased by 7.1% in Q1 on the year, with commodity exports growing by 9.4%. Household consumption, as the largest component of GDP, increased by 3.1% in Q1 y-on-y.

"The recovery of personal consumption is underpinned with a mild growth in employment and nominal wages which, with the absence of inflation and reduced interest rates on loans has relieved personal income for consumers," Raiffeisenbank Austria (RBA) analysts said commenting on the latest DZS report.

The accelerated growth of capital investments has positively impacted GDP, increasing by 4.3% in Q1 y-on-y following a growth of 3.7% in Q4, 2015. That is the fastest  growth in investments since Q3, 2008.

"An early Easter break as well as the fact that there was one more working day in Q1 as this is a leap year, certainly had its effects on economic growth at the start of the year," Santic said.

"We expect the growth rate to slow down in continuation of this year due to last year's greater comparison base. We see certain difficulties with regard to political stability which, if it continues, could have a negative effect on economic trends," Santic added.

As such, despite the somewhat larger growth than was expected in the first quarter, Santic believes that overall GDP growth at the end of the year will be 1.5%.

According to seasonally adjusted data, GDP in Q1 strengthened by 0.6% compared with the preceding quarter.

"Expectedly, there was an accelerated growth in economic activities in comparison with the last quarter of last year, thanks to an accelerated trend of higher household consumption and investments," Alen Kovac of Erste Bank said.

He added that "foreign demand continues to stimulate growth and to neutralise the pressure of the import of commodities and services whose growth of 6.1% reflects a revival of domestic demand, personal consumption and investments."

He is surprised, he said, by the positive contribution of state consumption, which grew by 0.6% in Q1 y-on-y.

"All in all, the first quarter is a good one with the growth rate above our expectations," Kovac said, adding that he forecasts a yearly growth of GDP of 1.8%.

RBA analysts upheld their previous forecast of an annual growth of GDP of 1.5%.

"In the short-term there is a positive risk that growth could reach 2%, particularly in the case of another extraordinary tourist season, improved investment climate and greater absorption of EU funds," RBA analysis said.

They stressed, however, that negative risks result partly from external factors, as a possible slower growth in the EU and major trade partners could have an unfavourable impact on exports, as well as from political instability in the country.

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