The European Commission on Tuesday released its Spring 2016 Forecast, mildly reducing Croatia's economic growth outlook to 1.8%, the main reason for this being the poor results in Q4 2015.

"Growth is to resume at a slow pace following the disappointing fourth quarter of 2015. Croatia’s real GDP expanded by 1.6% in 2015, the first year of positive growth since 2008. The negative reading of real GDP growth in 2015-Q4, at -0.5% (q-o-q), weakened the momentum for growth into 2016," the European Commission said in its forecast.

In its winter forecast, the European Commission projected Croatia's growth in 2016 at 2.1% and in 2015 at 1.8%, which in the end was lower - 1.6%. The Commission projects a 2.1% growth for 2017, the same as in its forecast released in February.

According to its spring forecast, the European Commission expects euro area GDP of 1.6% in 2016 and 1.8% in 2017 after 1.7% in 2015.  GDP growth in the EU is expected to moderate from 2.0% last year to 1.8% in 2016 before reaching 1.9% in 2017.

Looking ahead, GDP growth in Croatia is set to reach 1.8% in 2016 and slightly accelerate in 2017, driven by domestic demand. Tailwinds stemming from low energy prices and a recovering labour market underpin a robust growth in household disposable income.

"However, with a depressed real estate market and falling prices, deleveraging pressures are not expected to ease substantially in the short term, leading to an overall modest increase in consumption," the Commission said.

Investment is set to gather pace, driven by a rebound in public investment. Private investment is set to grow only mildly, under the impact of deleveraging, the Commission said.

The outlook for the external environment deteriorated markedly in the first months of 2016. "As a result, growth of exports of goods is expected to decelerate, with market share gains for Croatian exporters to the EU set to progressively stabilise. After a record year for the tourism sector in 2015, service exports are set to register a more modest increase in 2016 and 2017. Imports of goods and services are projected to slightly outpace exports in both years, implying a neutral contribution to growth. Stronger import growth is set to be partially offset by improving terms of trade in 2016," the Commission said.

Modest employment growth is set to bring a reduction in the unemployment rate of about 0.8 pps. in both 2016 and 2017. The Commission expects nominal compensation of employees to resume growing above productivity, leading to a small increase in unit labour costs.

After Spain and Greece where the unemployment rate exceeds 20%, Croatia remains in the group of countries with the highest unemployment rates in the EU. The lowest unemployment rate in 2016 is recorded in the Czech Republic -- 4.5%.

The general government deficit dropped in 2015 and is set to continue improving mildly.

"The general government deficit decreased to 3.2% of GDP in 2015, down from 5.5% of GDP in 2014. The main driver of the sizeable improvement was a 22% drop in public investment. This, together with a further reduction in public subsidies and the wage bill, resulted in a slight decrease in general government expenditure in nominal terms. Revenue grew by a solid 4.4%, mainly on account of strong growth in indirect taxes. On the back of these developments, the primary balance turned to a surplus of 0.4% of GDP in 2015," the Commission said.

In 2016, the general government deficit is projected to improve further to 2.7% of GDP. Revenues are set to be positively affected by the reduction of a corporate tax allowance for reinvested earnings, the residual impact of the hikes in excise taxes in 2015 and the announced increase in the supplementary health insurance premium. These measures are expected to partly offset the 0.3% of GDP fallout of the corporate income tax due to the impact of the conversion of CHF loans on profits in the banking sector.

Supported by the strengthening primary surplus, public debt is expected to peak at 87.6% of GDP in 2016 and to decline slightly in 2017 to 87.3%.

In this year's budget, the Croatian government projected the general government deficit at HRK 9.2 billion or 2.7% of GDP. The government announced the stabilisation of the public debt and expects it to amount to 86.8% of GDP at the end of 2016, and by 2018 that it will further decline to 84.7% of GDP.

Greece is the only EU member for which the European Commission projected a 0.3% GDP decline in 2016. Next year, all EU member states should record an economic growth. The biggest growth this year is expected to Ireland (4.9%), followed by Romania (4.2%), Malta (4.1%) and Sweden (3.4%).

Related stories

EC upgrades Croatia's GDP growth in 2015 from 0.3 to 1.1 pct

EC revises upward outlook of Croatia's GDP growth to 2.1 pct

EC forecasts Croatia's economy to rise 3.1 pct in 2017

EC markedly increases projection for Croatia's growth

HGK: Growth insufficient to reach EU average at faster pace

Latest news

Syrian opposition rules out future role for President al-Assad

The Syrian opposition said Friday it would not accept any role for President Bashar al-Assad in the future of the war-torn country, reacting to a recent US shift saying that removing al-Assad is no longer a priority for Washington.

Russian Army integrates breakaway forces of Georgian province

Parts of the small fighting forces of the Georgian breakaway province of South Ossetia have been placed under Russian military control, Russian Defence Minister Sergei Shoigu said on Friday.

Czech Republic's Pilsner Urquell beer is now Japanese

Japanese brewing company Asahi completed its takeover of the Czech brewery Pilsner Urquell on Friday, Asahi said in a statement.

Judge approves 25-million-dollar settlement of Trump University case

A US district judge on Friday approved a 25-million-dollar settlement of lawsuits and state fraud allegations against Trump University, the US president's now-defunct business venture.

Former Thai premier Thaksin to junta on reconciliation: 'Cut me out'

Former Thai prime minister Thaksin Shinawatra on Friday announced that he is not interested in the junta-led reconciliation process, three days after the junta handed him a half-a-billion-dollar tax bill for his past business deal.

Dalic: We welcome possible deal between Agrokor and banks

The government welcomes the possibility of an agreement being concluded between the Agrokor food company and creditor banks, and the bill on vitally important companies is not a fallback plan but the result of the government's care for the overall economic and financial stability of Croatia, Deputy Prime Minister and Minister of Economy Martina Dalic told a press conference in Zagreb on Friday.

Croatia, China sign action plan for cooperation in agriculture

The Croatian and Chinese ministries of agriculture on Friday signed an action plan for cooperation in the field of agriculture for the period 2017-2018, the Croatian ministry said in a statement.

ZSE indices up, Agrokor shares in focus of investor interest

The Zagreb Stock Exchange (ZSE) indices on Friday rose by more than 1.8%, with stocks of the Agrokor food and retail concern being in the focus of investor interest again.

Berlin police defend handling of Berlin market attacker

Berlin police defended themselves on Friday against accusations that they stopped surveillance on Berlin Christmas market attacker despite knowing in June 2016 he was dangerous.

Croatia, creditors tailor emergency measures to save tottering giant

Croatia's tottering retail and food giant Agrokor reached an agreement with its creditors, putting its debts standby and allowing it to continue working during emergency restructuring, the Croatian branch of Austria's Erste Bank said Friday.

Agrokor's creditors say standstill agreement to go into force today

A standstill agreement regarding the Agrokor concern's existing financial obligations to banks will take effect on Friday, additional capital will be injected into the concern in the coming days and the concern will be actively restructured, which includes a change of its management, it was said on Friday after a meeting between Agrokor's suppliers and creditor banks.

Palestinians, UN slam Israel's new settlement plan

Palestinians, Israeli activists and the UN lambasted the government of Israeli Prime Minister Benjamin Netanyahu on Friday, a day after it gave the go-ahead for the first new West Bank settlement in a quarter of a century.

South Sudan rebels release three abducted foreign oil workers

South Sudanese rebels have released three foreign engineers they abducted in early March in the oil-rich Upper Nile region, Foreign Affairs Ministry official Mawein Makol Arik said on Friday.

Turkish opposition: Imprisoned party chief has gone on hunger strike

The head of Turkey's pro-Kurdish opposition party has launched a hunger strike from prison.

European leagues threaten Champions League schedule clashes

The European Professional Football Leagues (EPFL) on Friday threatened schedule clashes on Champions League matchdays in an ongoing dispute with the governing body UEFA.

Danish court revokes citizenship of IS volunteer

A Danish appellate court on Friday stripped a man of his Danish citizenship for volunteering to fight for the extremist Islamic State in Syria.

Banks and Agrokor agree on key elements of standstill agreement

Member banks of the coordinating committee of financial creditors and representatives of the Agrokor food company have in principle agreed on key elements of a standstill agreement, which is expected to be signed later today, announcing changes in the company's management team, Erste Bank said in a statement on Friday afternoon.

Syrian man on trial in Sweden; mosque attack labelled terrorism

A Syrian man went on trial Friday in the southern Swedish city of Malmo, charged with terrorism and arson after an attack last year on a building used as an assembly hall by Shiite Muslims.