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ZAGREB (Croatia), May 30 (SeeNews) - Erste Group said it is increasing its forecast for Croatia's economic growth this year to 2.7% from the previously predicted 2.3%, following better-than-expected performance of the domestic economy in January-March.
The gross domestic product (GDP) growth accelerated to a real 3.9% year-on-year in the first quarter of 2019, from 2.3% in the preceding quarter, the Croatian Bureau of Statistics said in a flash estimate on Wednesday.
Erste said in a statement that the first-quarter GDP growth announcement by the statistical office outstripped its expectations of 3.1%, noting this is the highest growth rate since the end of 2016.
The Austria-based banking group added that Croatia's domestic demand remained the key growth driver in January-March, with private consumption increasing 4.4% year-on-year, investment activity surging a surprising 11.5% and public consumption rising 3.1% y/y.
Thus, the overall contribution of domestic demand to growth was 6.1 percentage points.
External demand, on the other hand, had a negative impact on the first-quarter growth as pressures from rising imports, especially on the services side, remained strong despite solid exports (4.6% year-on-year rise in exports vs. 7.7% increase in imports). This resulted in net exports shaving some 2.2 percentage points of the January-March GDP growth, slightly more than Erste anticipated, the banking group said.
"Looking ahead we anticipate domestic demand remaining in good shape. Private consumption keeping strong footprint supported by disposable income gains, solid consumer sentiment and still supportive consumer credit," Erste said, adding that it sees risks as balanced for the time being.
The Croatian government expects that the domestic economy will grow 2.5% this year, slightly decelerating from the 2.6% expansion in 2018.
Earlier this month, the European Commission lowered its forecast for Croatia's economic growth in 2019 to 2.6% from 2.7% predicted in February, with private consumption expected to remain the main growth driver.
Also in May, the European Bank for Reconstruction and Development affirmed its November forecast for Croatia's 2019 economic growth at 2.5%, considering the country's stronger tourism revenues and faster EU funds absorption.
Back in April, the International Monetary Fund confirmed its October projection that Croatia's economy will grow by 2.6% this year.