Hypo Alpe Adria Bank (HAAB) has projected this year's GDP growth rate at 1% and expects the growth rate in 2017 to be 1.5%.

"We forecast an average growth rate of 1-1.5% in the next two years," the head of the HAAB Economic Research Department, Hrvoje Stojic, said in Zagreb this past week.

Stojic said that the forecast was low but that one should note positive changes in the growth structure, with net exports increasingly contributing to growth.

Stojic said that Croatia had reduced the share of interest expenditure in GDP from 4% to 3.5% of GDP, but that the share was still high and made the country rather vulnerable in the event of a possible increase of interest rates.

The good thing is that interest rates are not likely to go up, and their increase will not happen at least in the next two years, he said.

Commenting on the state budget, Stojic said that it was good news for Croatia that it would have two consecutive years of "relatively decent fiscal consolidation."

"A certain level of fiscal consolidation was achieved in 2015, and by all accounts, it should resume. The deficit should certainly be lower, and whether it will be closer to 3% or 4% of GDP will depend on economic growth, inflation, and the wage budget. Talks with trade unions are yet to be held and we should wait for the final report on the execution of the 2015 budget," said Stojic.

If the wage budget remains frozen, it will be a success, and a government that tackles that challenge will do a big job, said the bank official.

He noted that emphasis should be put on corporate competitiveness and on attracting foreign investments.

Asked if the budget was development-oriented, Stojic said that it was largely determined by policies from the previous period.

"The government's true fiscal credibility is yet to be seen in the budget for 2017, or better yet, in talks with the European Commission, which come before that," said Stojic.

Better performance in the tourism sector this year could be a positive contributor to economic growth, Stojic noted.

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