GDP growth in Croatia accelerated to 2.9% y/y in 2016 from 1.6% in 2015 thanks to the private consumption growth, recovery in foreign demand and favourable tourism season, the first estimate from the statistics office showed on February 28. In Q4, GDP growth also accelerated to 3.4% y/y from 2.9% in Q3.
Croatia emerged from a six-year recession in 2015. The Adriatic country has posted GDP growth in the last nine quarters since Q4 2014. 2016 GDP growth was the highest since the 5.2% recorded in 2007, while Q4 growth was the highest since Q1 2008.
The Croatian National Bank (HNB) forecast for growth in Q4 was just 2.6%. Overall 2016 GDP growth also beat expectations. The Croatian finance ministry expected the economy to expand by 2% last year and the HNB expected GDP growth of 2.8%. The World Bank’s 2016 growth forecast was 2.4% while the European Commission (EC) was expecting 2.8% growth. The International Monetary Fund (IMF) 2016 growth estimate stood at 2.7%.
The escalating growth in Q4 was again mainly supported by domestic private consumption. Households’ final consumption grew 3.6% y/y in Q4, higher than the 3.4% growth recorded in the third quarter. Gross fixed capital formation growth also accelerated to 4.6% in Q4 from 2.9% in Q3 while export growth accelerated to 9.7% y/y from 6.3% in Q3 thanks to the recovery in foreign demand.
On the production side, manufacturing sector growth was the highest at 6.4% in Q4, followed by wholesale and retail trade, transportation, storage, accommodation and food service activities sector with 5.4% thanks to the favourable tourism season. Meanwhile, the agriculture and finance sectors posted contractions in the last quarter of 2016.
The government’s GDP growth target for 2017 stands at 3.2% while the HNB forecasts 3% growth. The EC expects 2.8% growth and Fitch expects 2.5%-3.0% GDP growth. The World Bank’s 2017 growth estimate stands at 2.7%. The bank expects economic expansion to remain solid in 2016-2018 with growth averaging 2.3%, led by strengthened personal consumption, exports and investment.
Moody’s believes that Croatia’s potential growth is below 1%, which is low for a converging economy and below other catching-up economies, due to historically low investment and structural rigidities, a low labour force participation rate and bottlenecks in the absorption of EU funds. Fitch estimates Croatia’s potential growth at 1%-2% per year, again a very low rate for a country at Croatia's income level. Croatia's low potential growth rate reflects a large and inefficient public sector, slow resolution of bad loans, weak progress on structural reform and a challenging demographic outlook.
|Real GDP Growth by Expenditure Aproach|
|Final Consumption (FC)||1.2||1.9||1.1||2.4||2.9||3.0||3.1|
|- Households' FC||1.4||2.7||1.2||3.1||3.1||3.4||3.6|
|- Non-profit organizations' FC||2.0||1.8||1.9||2.5||1.9||2.5||1.8|
|Gross Fixed Capital Formation||2.2||3.4||1.6||4.3||6.5||2.9||4.6|
|Exports of goods and services||8.0||10.9||9.2||7.2||4.0||6.3||9.7|
|Imports of goods and services||8.1||13.9||8.6||6.1||7.3||6.0||9.7|
|Real GDP Growth by Production Aproach|
|Agriculture, forestry and fishing||-3.0||-0.5||2.4||1.7||1.3||1.5||-3.7|
|Manufacturing, mining&quarrying and other industries||2.0||4.3||3.5||6.3||4.9||1.6||6.3|
|Wholesale and retail trade, transportation, storage, accommodation and food service activities||4.4||5.2||2.9||4.8||3.2||5.1||5.4|
|Information and Communication||0.0||-0.1||0.4||1.0||1.9||3.6||4.2|
|Financial and Insurance Activities||0.9||-0.3||0.7||0.7||1.2||1.8||-0.5|
|Real Estate Activities||-0.1||0.1||0.1||0.4||0.7||0.7||0.3|