Thanks to stronger consumption, exports and investments, economists estimate that Croatia's economy increased more than two percent in the last quarter of 2015, but at a slower rate than in the third quarter.

Later next week, the national statistical office (DZS) will publish the first forecasts regarding GDP in Q4 2015. Eight economists interviewed by Hina estimate that in that quarter the economy grew 2.1% on the year on average, their estimates ranging from 1.8 to 2.6%. The last quarter of last year would thus be the fifth in a row in which GDP increased, although more slowly than in Q3, when it increased 2.8% on the year, the most since Q2 2008, the year before the recession.

The economists interviewed by Hina say that economic growth is due to stronger personal consumption, the biggest GDP component.

Retail trade has been growing for 17 consecutive months, for the first time since 2007. In Q4 2015, retail trade rose 3.2% on the year, its fastest growth since Q3 2007. One of the economists notes that consumption growth is due to tax changes enforced at the beginning of the year, which resulted in higher salaries. According to DZS figures, over 11 months in 2015, the average net salary was HRK 5.705, up 3.9% from the same time in 2014 in real terms.

One of the economists says that retail growth was also due to a longer tourism season, positive trends on the labour market and higher expectations.

Export growth has also had a positive impact on the economy. According to DZS figures, Croatian exports in 2015 totalled HRK 87.6 billion, up 10.7% on the year. This was mainly due to economic growth in the European Union, Croatia's biggest trade partner. Imports rose 7% to HRK 140 billion.

Industrial production has been growing for 11 straight months, the longest growth period since 2007. In Q4 2015, it grew 3.3% on the year.

Most of the interviewed economists expect the growth of gross investments in fixed capital to continue. In Q3 2015, they rose 2.2% on the year, for the second quarter in a row.

One of the economists expects positive investment activities given that the decline in construction has been stopped and the absorption of EU funds improved.

The interviewed economists are not sure about a positive contribution from government spending, which in Q4 2015 went up 0.6% on the year. One says the private sector has probably supported the mild increase in gross investments, but that government spending has probably been burdened by post-election negotiations.

Year on year, GDP increased 0.5% in Q1 2015, 1.2% in Q2 and 2.8% in Q3. Over nine months in 2015, GDP was 1.5% higher year on year in real terms.

Since economic growth in the last quarter of last year is expected to be high, GDP growth will also be markedly higher than predicted. At the beginning of 2015, growth rates ranged from 0.2 to 0.5%. In any case, 2015 will be the first year in which the economy will have grown after six years of recession and GDP is expected to grow this year too.

The European Commission recently upgraded its forecast of Croatian economic growth in 2016 from 1.4 to 2.1%, while the Croatian National Bank raised its forecast from 1.5 to 1.8%.

The economists interviewed by Hina predict a growth of 1.2% on average, with their estimates ranging from 1 to 1.5%, expecting positive contributions from personal consumption, net exports and investments. However, they say that a lot will depend on EU economic growth, oil prices and interest rates on the global capital market.

In 2016, they expect a slower growth because of the unfavourable international environment and lack of one-off measures such as income tax changes, which strongly impacted GDP growth in 2015.

One economist notes that the issue of fiscal consolidation remains open as the government has not yet presented economic policy guidelines and a budget for this year. Fiscal consolidation is necessary, although its implementation will certainly negatively impact economic activity in the short term, he says.

(EUR 1 = HRK 7.6)

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