Croatia's economy gaining steam, up over 2% in Q2 - analysts

Croatia's economic growth in Q2 2016 is set to have risen above 2% on the back of growing consumption and investments and excellent results in the ongoing tourist season, according to estimates of eight analysts polled by Hina, whose projections range from 2.1% to 2.5%.

The national statistical office will release its preliminary estimates of the country's Q2 economic performance at the end of this month, and the eight analysts suggest that Gross Domestic Product is set to have grown 2.3% on the average compared to the corresponding period in 2015.

Thus, Q2 2016 will be the seventh straight quarter to see an increase in GDP, albeit at a slower pace than in Q1 2016, when Croatia's economy expanded by 2.7% year on year.

The analysts believe that the tailwinds pushing the economic growth are personal consumption and results in the tourist trade.

For instance, retail sales increased 3.3% in Q2 2016 on the year, and personal consumption had a 22-month streak of sales increase.

"Personal consumption is underpinned by good results in the shoulder season in the tourist trade and seasonal improvements on the labour market," one of the polled analysts has said.

The average net salary in June 2016 was HRK 5,686 (EUR 760), and went up 2.4% on the year in real terms. Furthermore, deflation gave an impetus to consumption.

Revenues from tourism are likely to reach a record high 8 billion euros by the end of this year, according to the analysts' estimates.

Industrial output, a component of growth, continued to pick up for 17 months in a row. In Q2, industrial production is set to have increased 3.5% on the year, however, this was a slowdown compared to a rise of 6.8%  in Q1.

A slowdown in GDP in Q2 compared to Q1 is predicted due to a slower pace in the growth of industrial production and due to a lower rise in exports in parallel to rising imports on the back of rising domestic demand, one of the analysts notes.

Croatia's commodity exports in the first half of 2016 went up 2.9% on the year, amounting to nearly HRK 43 billion, while imports went up 3.1% to HRK 71.2 billion, the national statistical office said recently. The trade deficit in that period was HRK 27.97 billion, up 3.4% from H1 2015. Croatia's commodity exports to the European Union went up by 2.3% to HRK 29.2 billion, while imports rose 4.2% to HRK 56.5 billion.

Also, gross fixed capital formation (GFCF), rising for the fourth quarter in row, by 4.3% in Q2, is set to positively impact the economic growth.

Rising investments are reflected in figures showing a rebound in the construction sector that saw a 3.1% rise in the volume of works in the first five months of 2016 compared to the corresponding period in 2015.

On the other hand, analysts fear that the contribution of state consumption to the rising GDP might be negligible, given that state consumption was up by 0.6% in Q1 on the year.

The fact that the economy looked up in H1 2016 has made analysts revise upward their projections for Croatia's activity.

Thus, Croatia's economy is likely to pick up by 2.1% according to the latest projections of the eight analysts whose previous projections stood at 1.4%.

Likewise, the upwardly revised economic projections of the Croatian National Bank, the International Monetary Fund and the European Commission stand at 2.3%, 1.9% and 1.8% respectively. The outgoing government believes that the economy will expand by 2% in 2016.

Last update: Sun, 28/08/2016 - 12:12
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