May 30 (SeeNews) - Erste Group said on Wednesday it is keeping its forecast for Croatia's economic growth in 2018 at 2.8%, despite stronger-than-expected expansion of 2.5% in the first quarter.
"GDP growth delivered stronger performance than both we and the market expected (both at 2.3% y/y), as the headline figure accelerated from 2.2% in 4Q17 to 2.5% y/y in 1Q18", the banking group said in a short note on Croatia, after the country's statistical office released a flash GDP estimate on Wednesday.
In the months through March, domestic demand remained a strong positive contributor, with more pronounced growth dynamics seen on both the private consumption and investments side, while the loss of momentum on the exports side continued.
"As far as the outlook goes, we continue to see the headline figure supported by solid private consumption momentum, courtesy of solid consumer sentiment, disposable income gains and stronger credit", Erste noted.
It, however, said that the GDP profile reflects structural weakness, suggesting that GDP growth is likely to remain in the region of close to the EU average (reflecting a low potential GDP growth rate), as the stronger outlook is still pending the much-awaited stronger structural reform effort.
In the first quarter, the strongest negative impact on growth came from the external demand side, as exports recorded a mild decline of -0.5% y/y amid weak goods performance. On the other hand, imports increased by 5.5% y/y, which resulted in the net exports contribution shaving off approximately 3pp from headline figure growth.
Erste noted that the imports side should remain under pressure from the domestic demand profile, hence suggesting that the net exports contribution will remain in the modest red in 2018.