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ZAGREB (Croatia), June 16 (SeeNews) - Erste Group said it has lowered its economic growth forecast for Croatia to 2.7% in 2017 from an earlier predicted 3.0%, due to problems in the country's largest retail and food concern Agrokor.
"Agrokor restructuring process would, in our view, weigh on domestic demand prospects at least in 2017-18, resulting in more cautious consumers and driving the restructuring process throughout the supply chain, thus resulting in a less supportive investments profile," Erste said in its latest research paper on Croatia, published on Thursday.
It explained that the revised GDP implies some 0.5pp Agrokor-related effect.
Erste also said it expects Croatia's monetary policy stance to remain loose. "The fiscal stance should remain prudent (budget deficit around 1.5% of GDP) and, in our view, rating-positive", it commented.
The lender noted that subsiding political risks imply additional room for a more positive rating assessment, but added that a more conservative approach from rating agencies is expected until there is clarity on the Agrokor story.
In 2018, Croatia's GDP is expected to fall further to 2.4%, also on the back of Agrokor issues.
In terms of consumer prices, Croatia is still expected to reverse the 1.1% deflation experienced last year and see an inflation of 1.4% this year and 1.3% in 2018.
On the political front, Erste commented that the situation has stabilized after a period of pronounced uncertainties, as the Croatian Democratic Party (HDZ) signed a coalition deal with a new political partner, the Croatian People's Party (HNS).
It, however, added that it is taking a cautious stance regarding the stability and durability of the newly-formed government, as this is the first time that HDZ and HNS have collaborated.
"In our baseline scenario, we do not see snap elections ahead, but even if it were to come to that, based on the results of recently held local elections, we would see HDZ winning again," Erste added, noting that stable politics are important for the continuation of work on a solution for the Agrokor case.