Croatia’s economy is expected to expand by 2.3% this year, the central bank said on July 13, revising upwards the previous forecast of 1.8% growth made in December. Expansion should accelerate to 2.5% the following year.

Despite the political turmoil in the country following the government's collapse, macroeconomic data for Croatia is still promising, except the ongoing deflation, while the EU and the IMF anchors play their role to keep public finance figures under control. The country’s GDP expanded 2.7% y/y in the first quarter of 2016.

The largest contribution to this year’s expected growth should come from foreign demand, but also from a rise of all elements of domestic demand. The growth of private consumption might be higher than last year, thanks to a faster growth of employment and gross salaries. The positive trends should continue in 2017, when the expansion is seen at 2.5%.

Consumer prices are expected to increase by 0.9% this year and by 1.2% in the following.

“Along with maintaining a stable exchange rate, HNB will continue to conduct an expansive monetary policy,” the central bank said. “Such an orientation contributes to favourable financing conditions for all sectors, followed by a slight recovery in domestic lending,” it added.

Last month, the Zagreb Institute of Economics (EIZ) also improved its estimation on Croatia’s 2016 GDP. EIZ now expects the economy to expand by 1.9% this year, faster than the previous estimate of 1.5%. Next year's growth was also revised up - to 2.1% from 1.8%.