January 19 (SeeNews) - Croatia economy is expected to expand by 2.7% this year, below the government's 3.2% target, due to slower private consumption growth and the negative effect of tax reforms on personal incomes, Unicredit said.
"We expect real GDP growth to be weaker in 2017 at 2.7% rather than the 3.2% assumed by the government, based on slower growth of private consumption, with tax reform likely to have a bigger impact on the income of the population with a higher propensity to save, and of investment as we still miss evidence of accelerated private investment," the lender said in a quarterly publication made available by its Slovenian unit.
For 2016 UniCredit revised up its Croatian economic growth forecast to 2.7% from 2.2% on the back of a strong tourism season.
Real GDP growth will also be prone to uncertainty linked to the global trade outlook, UniCredit said, adding that another possible burden could be rising arrears which might result from expanded expenditures like on a few occasions in the past.
The lender also noted that Croatia's funding needs for 2017 will be very testing, with the budget-funding plan envisaging large bond issuance on both the domestic market - equivalent to about 1.9 billion euro ($2.02 billion) - and on international markets - 1.5 billion euro, along with stepped-up support from international financial institutions such as the World Bank.
"The implementation of this plan will be challenging given the potential rise in US interest rates and global long-term yields," it warned.
UniCredit, however, concluded that Croatia's fiscal position should improve further, adding that its strong extended basic balance position and prospects of credit rating improvements in the medium term are encouraging.
The lender predicts Croatia's GDP will improve slightly to 2.9% in 2018.
($=0.9385 euro)