February 28 (SeeNews) - Croatia's GDP growth is expected to slow down to 2.7% in 2019 and 2.6% in 2020, remaining driven to a large extent by household consumption, the European Commission said.
"The economic recovery has continued, largely driven by robust domestic demand. In 2018 GDP growth is projected to have moderated slightly to 2.8%, from 2.9% the year before," the EU's executive body said in its 2019 country report for Croatia, part of the European Semester Winter Package, on Wednesday.
The European Commission expects investment to play a slowly increasing role in GDP growth.The private sector, in particular, is expected to continue gaining from sufficient liquidity and declining interest rates. On the other hand, EU funding is expected to be used on a larger scale in the public sector, as the end of the programming period approaches.
Furthermore, the Commission recommended that Croatia should use the still favourable economic outlook to step up structural reform efforts, which would help boost potential growth. Reforms must be focused on strengthening the positive trends on the labour market, as well as creating a business environment conducive to investment and higher productivity achievements.
Croatia has made some progress in addressing the 2018 country-specific recommendations, the Commission said. More specifically, it noted the substantial progress achieved thanks to the prudent government spending and borrowing, which continued to support a fast debt-to-GDP ratio decline. The Commission also praised the important pension reform package which entered into force in January 2019, striving to promote longer working lives, as it addresses structural instability in the system.
Croatia's public debt ratio is estimated to have declined further in 2018, according to the Commission. The debt ratio started decreasing in 2015, and has fallen by more than 12% since, to a projected 73.5 % of GDP in 2018. Moreover, the corporate debt level relative to GDP is diminishing and associated risks are abating.
Economic growth and strengthened current account surpluses are clearing the way for further cutback of liabilities to foreign creditors and investors, the Commission said.
Although unemployment has decreased, there are few people looking for jobs. Same goes for poverty and social exclusion which are declining but still remain above the European Union average, the Commission said.