The downward revision of the growth projection for Croatia for this year is the result of a decline in public investment in the final quarter of 2015, and the actual growth will depend on the implementation of the National Reform Programme, which is ambitious, European Commission experts involved in the drafting of the Spring Economic Forecast said in Brussels on Tuesday.

The Commission was surprised by a 22% drop in Croatian public investment in the fourth quarter of 2015, as a result of which the budget deficit decreased more than had been expected and growth was lower.

We didn't expect that, the figures we had didn't indicate that, a Commission official said.

The Commission released the Spring Economic Forecast on Tuesday, revising downwards its projection of Croatian growth for this year to 1.8% from 2.1% projected in the Winter Forecast, the main reason being poor results in the final quarter of last year.

Last year Croatia's economy grew at a rate of 1.6%, which was less than expected because of a GDP decline of 0.5% in the fourth quarter of 2015 compared with the previous quarter.

At the same time, the budget deficit fell considerably, mostly due to a 22% decrease in public investment. The deficit in 2015 was 3.2%, as against 5.5% in 2014.

The fact that the deficit dropped need not necessarily be positive, the Commission expert said. We welcome the improvement of the fiscal situation, which is favourable for growth, he added.

The Commission estimates that the drop in public investment, which was evenly distributed between central and local government, is due to the fact that projects for which funding had been secured were not implemented because there was no government owing to parliamentary elections and it took a while to form the government after the elections. On the other hand, the Commission took postponed projects into consideration in the present forecast and increased its projection of investment activities in this year.

Asked about the growth outlook for this year, Commission experts said that that would depend on the implementation of the National Reform Programme.

The Spring Forecast was made based on the budget for this year and did not take into consideration the National Reform Programme, which the government adopted on April 28.

The National Reform Programme contains 60 measures across four policy areas: macroeconomic stability and fiscal sustainability, facilitating doing business and improving the investment climate, improving public sector efficiency and transparency, and improving education for the labour market.

The Commission experts said that the plan was ambitious and that the Commission had closely collaborated with the government in its preparation. The reforms now need to be implemented because in many areas reforms have not been carried out earlier, they said.

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