September 19 (SeeNews) - The Zagreb-based Institute of Economics on Wednesday estimated Croatia's 2018 economic growth at 3.0%, with personal consumption remaining the strongest driver of growth.
"Strong personal consumption is primarily the result of rising disposable income based on favourable labor market conditions, steady real wage growth, higher pension transfers, incoming remittances from abroad, and increased household loans," the institute said in a research paper.
It noted that investment activity is expected to pick up in the remaining two quarters, closing the year with investment growth of 5.3%, while foreign trade too is forecast to continue along an increasing path.
Croatia's GDP growth rate is expected to slow down slightly to 2.9% in 2019, with somewhat reduced contributions of both net exports and domestic demand growth, the institute added.
It explained that risks to its projections are mainly balanced.
On the one hand, the institute commented, the announced tax reform and a further ease of doing business might spark higher-than-anticipated business activity, while the agreement on debt settling in the ailing Agrokor concern might bring some stability and possible investment rebound.
On the other hand, the negative experience with EU funds absorption during the last five years, the ongoing uncertainties with Agrokor and more recently the Uljanik Group shipyards, coupled with the latest political turmoil in the ruling coalition, might dampen investment activity and consumer demand, the institute cautioned.
It also projected that Croatia's consumer prices will close the year with a growth of 1.6%, before dropping slightly to 1.5% next year, while the unemployment rate is seen declining to 8.8% at the end of 2019 compared to 9.9% this year.
The Institute of Economics has more than seventy-five years of experience in scientific and development research in economics.