March 12 (SeeNews) - Erste Group said on Tuesday it has trimmed its forecast for Croatia's economic growth in 2019 to 2.3%, seeing headwinds from the deteriorated exports outlook as the biggest downside risk.
Domestic demand should be backed by steady private consumption, while investments should also gather some momentum in 2019, the Austria-based banking group said in a macro outlook on Croatia on Tuesday.
“The GDP growth slowdown in the fourth quarter of 2018 was in line with our expectations, as the economy expanded by 2.3%, i.e. decelerating against the third quarter performance (2.8% y/y),” Erste said.
With regard to inflation, Erste noted it expects demand-side pressures to accelerate marginally, reflecting a steady consumption profile.
"The supply side remains mostly sensitive to energy prices, while some one-offs should come from the announced administrative prices hikes. Consequently, we see average inflation in 2019 decelerating towards the 1% region," Erste explained.
The banking group said that the political landscape in Croatia has not changed much recently. It said that the focus should be shifted to the upcoming EU elections, to see how the two biggest political parties can compete against more populist options.
The fragile political setup is likely to continue to impede the reform agenda, with healthcare, judiciary and education topping the list, Erste said.
Croatia is likely to maintain its laggard status versus CEE peers when it comes to upgrading the potential growth rate and convergence process dynamics, the banking group concluded.