November 7 (SeeNews) - The European Commission said on Thursday it has cut its forecast for Croatia's economic growth in 2019 to 2.9%, from 3.1% predicted in July, with domestic demand still seen as the main growth driver.
Domestic demand will keep on driving Croatia's GDP growth throughout the 2019-2021 period, supported by improving labour market, rising wages and low inflation, the European Commission said in its Autumn 2019 Economic Forecast report.
Public consumption is also expected to have a stronger contribution, driven by rising intermediate consumption and an increasing public sector wage bill.
The Commission has also downgraded its forecast for Croatia's economic growth in 2020 to 2.6% from 2.7% expected in July, saying the economic growth is expected to further cool down to 2.4% in 2021.
Stronger absorption of EU funds by both the public and private sectors will continue to boost investment growth, with favourable financing conditions remaining supportive of private investment.
"Croatia’s main trading partners are expected to slow down growth in goods exports throughout the 2019-2021 period. Exports of services, dominated by the tourism sector, are also expected to grow more moderately," the Commission said.
"With rising competition in the tourism sector and high capacity utilisation in the busiest months of the season, it would take an increase in both the number of visits outside the peak season and in per-capita spending to boost export growth in the service sector," it concluded.
By contrast, import growth should remain strong in 2020 and 2021, reflecting the strong domestic demand, with the overall trade balance expected to deteriorate in the forecast period.
Inflation should drop to just below 1% in 2019, from 1.6% in 2018, but will thereafter pick up to around 1.5% in 2020 and 2021.
"In structural terms, the general government deficit is expected to increase from 0.3% of GDP in 2018 to 1% of GDP in 2020 and decrease slightly in 2021. The debt ratio is set to continue declining strongly on the back of surpluses and nominal GDP growth, dipping below 65% of GDP in 2021," the Commission said.
Anticipated annual percentage changes in Croatia's main economic indicators follow, unless indicated differently, as per Autumn 2019 Economic Forecast:
|
2018 |
2019 |
2020 |
2021 |
GDP growth rate |
2.6 |
2.9 |
2.6 |
2.4 |
Exports (goods, services) |
2.8 |
3.2 |
2.7 |
2.6 |
Imports (goods, services) |
5.5 |
6.3 |
5.3 |
4.6 |
Employment |
1.8 |
1.3 |
1.1 |
1.1 |
Unemployment rate (% of total labour force) |
8.4 |
6.9 |
5.8 |
4.9 |
HICP inflation |
1.6 |
0.9 |
1.4 |
1.5 |
Current account balance (% of GDP) |
2.9 |
1.6 |
0.7 |
0.3 |
General govt balance (% of GDP) |
0.3 |
0.1 |
0.0 |
0.0 |
Structural govt balance (% of potential GDP) |
-0.3 |
-0.8 |
-1.0 |
-0.8 |
General govt gross debt (% of GDP) |
74.8 |
71.2 |
67.7 |
64.4 |