EC affirms Croatia's GDP 2018 growth fcast, sees strong domestic demand

EC affirms Croatia's GDP 2018 growth fcast, sees strong domestic demand Author: Radomir Ralev

ZAGREB (Croatia), February 7 (SeeNews) - The European Commission said on Wednesday it has maintained its outlook on Croatia's economic growth this year at 2.8%, the same as the November projection, with private consumption remaining the main engine of growth.

"Investment is expected to pick up as credit activity is growing in the corporate sector, although the outcome of Agrokor’s operational and financial restructuring still presents risks", the European Commission said in its Winter 2018 Economic Forecast.

Indicators for 2017 point to another record season in tourism, but exports of goods also performed strongly. Overall, net exports are expected to weigh on growth as strong domestic demand fuels demand for imports, the Commission said.

Private consumption remains the main engine of growth, with rising wages and employment spurring disposable income and consumer confidence, it noted.

Employment is increasing steadily, while the previously recorded sharp declines in the unemployment rate are expected to ease in line with the expected slowdown in net outbound migration, the Commission said.

"Tightening labour market conditions, particularly in sectors with labour shortages, and wage hikes in the public sector, are expected to keep wages on the rise."

Further inflationary pressures are expected from energy prices. Overall, HICP inflation reached 1.3% in 2017 and is forecast to continue rising, with core inflation picking up towards the end of the forecast horizon, the Commission added.

The Croatian economy is expected to expand by 2.7% in 2019. At this pace, the economy is set to reach its pre-recession volume of output by the end of next year, the Commission said. 

Following revisions to the national accounts, real GDP growth in 2016 is now reported at 3.2%, 0.3 p.p. higher than before. This rate of growth was likely maintained in 2017, as economic activity was strong in the first three quarters of the year and some high-frequency indicators point to a slowdown in the last quarter, according to the Commission.

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