EBRD expects Croatia's economy to pick up by 1.5% in 2016

The European Bank for Reconstruction and Development (EBRD) has revised upward its projection of Croatia's economic growth in 2016 to 1.5% from its initial forecast of about +0.5%, according to the "Regional Economic Prospects in EBRD Countries of Operations", published on Wednesday.

"In Croatia, the six-year recession came to an end in 2015 and the economy expanded by 1.6 per cent. The recovery has been underpinned by a better-than-expected tourist season, stronger external demand and lower oil prices."

The EBRD is forecasting growth of 1.5 per cent in both 2016 and 2017.

"Recovering private consumption will be supported by lower oil prices and continuing disinflation, and exports will grow on further integration of Croatian companies in the EU market and higher tourist inflows due to perceived security risks in competing tourist destinations," according to the report.

"Public investments may pick up gradually as the absorption capacity of EU funds rises.,"

"Despite some improvement in business sentiment, private investment is expected to remain subdued, pointing to remaining structural weaknesses," the document warns.

"The 2015 general government deficit was smaller than expected by many analysts but further fiscal adjustment is needed to put the public debt on a sustainable path, which may weigh on short-term growth prospects. Long-term growth may remain weak in the absence of further reforms in the business environment, resolving high level of (corporate) non-performing loans as well as reducing household and corporate leverage.," the Croatia section of the paper reads.

The EBRD projection of Croatia's growth is somewhat lower than the forecasts by the European Commission and the Croatian National Bank which say that Croatia's economy is set to grow 1.8% in 2016.

The International Monetary Fund estimates that Croatia's economy will rise by 1.9%, and local economic analysts project the growth between 1.0% and 1.5% in 2016. The government of Prime Minister Tihomir Oreskovic belieeves that the economy will pick up by 2%.

As for the whole region covered by the report, "after five years of continued deceleration, average growth in the region is expected to pick up modestly, from 0.5 per cent in 2015 to 1.4 per cent in 2016. This momentum is expected to be sustained in 2017 as average growth reaches 2.5 per cent. At the same time, the outlook for growth in the EBRD region in 2016 has weakened slightly since our last forecast in November."

Poland is likely to have the fastest growth of 3.6% in 2016, and Slovakia is set to record 3.2% growth, according to the EBRD.

Apart from Croatia, the slowest growth rates are expected in Slovenia (2%) and Hungary (2.1%).

Last update: Wed, 11/05/2016 - 19:28

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