March 15 (SeeNews) - Erste Group said it is maintaining its estimates for Croatia’s economic expansion at 2.8% this year even though there are increasing risks to the forecast.
"Coming to the 2018 outlook - we keep our call for 2018 at 2.8%, acknowledging increasing risks to the forecast, but opting for wait-and-see mode until we get some flavor from the 1Q18 figures," Erste Group analysts said in their latest macroeconomic outlook report on Croatia on Wednesday.
The lender is predicting solid domestic demand outlook, more subtle private consumption support, and somewhat stronger investments profile.
The external demand outlook remains supportive, Erste noted. It added that tourism faces a strong base from 2017, while imports outlook suggests an overall negative net exports contribution.
According to Erste analysts, Croatia's Q4 GDP growth brought a more pronounced slowdown in economic activity than anticipated, as GDP growth decelerated to 2.0% y/y in the fourth quarter, trimming the full year 2017 GDP growth to 2.8%.
The lender predicts Croatia's GDP growth will slow to 2.7% in 2019.
Erste analysts see Croatia's average consumer prices growing by 1.4% in 2018, compared with an earlier forecast rise of 1.5%, and predict inflation of 1.9% next year.
In terms of the political scene in the country, Erste analysts believe that the restructuring of Croatia's ailing Agrokor concern will remain in the spotlight, elevating overall political risks and potentially delivering more motions for non-confidence vote down the road.
Erste noted, however, that there is a low likelihood of an early election scenario as the ruling right-wing HDZ and the liberal HNS get along smoothly, despite not being a natural tie.
The fragile political setup, however, is seen as likely to continue to impede the reform agenda, suggesting that Croatia is likely to maintain its laggard status vs. CEE peers when it comes to potential growth rate and convergence process dynamics.
In terms of Croatia's 2018 budget, Erste concluded it is likely to remain close to balanced, while complacency on the reforms front prevails.