novac, ekonomija.jpg
Photograph: HINA

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

EC markedly increases projection for Croatia's growth

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

EIZ: GDP growth of 1.5% forecast for 2015

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

Latest news

Austria identifies US-based Turk as source of cyberattacks

A string of cyberattacks against Austrian institutions has been linked to a Turkish suspect operating out of the US state of Kentucky, an Austrian newspaper reported Tuesday, citing an investigation by the army's intelligence agency.

Italy restores, returns IS-vandalized busts to Syria

Two ancient Roman busts, which were transported to Italy after being vandalized by the Islamic State extremist group in the Syrian city of Palmyra, have been restored and returned to Damascus, the Italian ministry of culture said Tuesday.

Norwegian state pension fund almost doubles return in 2016

The Norwegian state pension fund reported a return of almost 7 per cent in 2016 on the back of strong stock markets in the second half of the year, the Scandinavian country's central bank said Tuesday.

Croatian PM says sports needs to be given back to athletes

Commenting on an ultimatum the Bridge party made on Monday when it asked for a replacement of the Croatian Football Federation (HNS) leadership, Prime Minister Andrej Plenkovic said on Tuesday that "sports needs to be given back to athletes."

Three killed after small plane crashes into California homes

Three people were killed and two injured on Monday after a small plane crashed into a residential neighbourhood in the city of Riverside in California, local fire chief Michael Moore told reporters.

Austria toughens measures against rejected asylum seekers

Austria will increase penalties for rejected asylum seekers who refuse to leave the country, the government decided Tuesday, in a move that ups the pressure on migrants in the country.

Taliban militants kill 12 policemen in southern Afghanistan

Taliban militants killed 12 Afghan policemen at an outpost in the embattled southern province of Helmand, in what officials described Tuesday as a possible inside job.

Danish man on trial over Filipino webcam rape and abuse

A Danish man went on trial Tuesday charged with 346 counts of paying for online sex shows and rape involving Filipino girls.

Italy's Mount Etna erupts, but poses no threat so far

Sicily's Mount Etna volcano erupted on Monday evening, a spokesman for the National Institute of Geophysics and Vulcanology (INGV) told dpa on Tuesday.

Slovenian gov't looking for plan B to save Cimos

The Slovenian government is searching for an alternative plan to save the Koper-based Cimos car parts manufacturer from bankruptcy and a meeting was held on Tuesday between Economy Minister Zdravko Pocvalsek and representatives of all institutions responsible for public property management as the company's majority owner, with a 94% stake, is the government.

Croatia's 2016 Q4 GDP rises 3.4 per cent

Croatia's economy expanded by 3.4% in the last quarter of 2016 compared to the corresponding quarter in 2015, reaching a record high over nearly nine years, according to preliminary results released by the national statistical office (DZS) on Tuesday.

MOL netts $2.15 bln as CCS EBITDA

Hungary's oil and gas group MOL netted 2.15 billion dollars as CCS EBITDA last year, according to company's financial report on Tuesday.

UN: 8,000 people have fled western Mosul since start of offensive

Around 8,000 people have fled from western Mosul and surrounding areas since Iraqi forces launched an offensive to dislodge Islamic State militants from the area, according to the United Nations.

Protests planned across Germany after journalist jailed in Turkey

Protests are planned in 12 German cities on Tuesday after a Turkish court ordered a journalist from Die Welt newspaper to be jailed pending a trial on charges including spreading propaganda for a terrorist organization.

Atlantic Grupa posts financial statement for 2016

In 2016, Atlantic Grupa recorded a net profit of HRK 163.2 million or 32.7% less than in 2015, according to an unrevised consolidated financial statement the company issued on Tuesday.

Trump address to focus on economic opportunity, national security

US President Donald Trump will focus on economic opportunity and national security in an address laying out his plans to a joint session of Congress late Tuesday, White House officials say.

One million bank employees on strike in India

Around 1 million bank employees across India went on a day-long strike on Tuesday to protest proposals to reform the banking industry and press for demands relating to wages.

Two suspects in North Korean killing to be charged with murder

Two female suspects in custody over the killing of Kim Jong Nam, North Korean leader Kim Jong Un's estranged half brother, will appear in court in Malaysia on Wednesday, Malaysia's attorney general said.