GDP growth in Croatia decelerated to 2.5% y/y in Q1 from 3.4% in the last quarter of 2016, the first estimate from the statistics office showed on May 31. A poll of economists has predicted a 3.1% y/y growth for the first quarter. Q1 growth was also lower than the 2.7% y/y recorded in the first quarter of 2016.

The European Commission (EC) recently cut its 2017 GDP growth forecast for Croatia to 2.9% in its Spring 2017 Economic Forecast from 3.1% in the previous Winter 2017 Economic Forecast due to the Agrokor crisis. The EC expects the troubles facing Croatia’s largest private company Agrokor to weigh on growth. However, the economic recovery is set to remain strong and broad-based, the EC said on May 11.

Croatia emerged from a six-year recession in 2015. The Adriatic country has posted GDP growth in the last ten quarters since the last quarter of 2014. GDP growth 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.

2016 GDP growth was the highest since the 5.2% recorded in 2007, while GDP growth in the last quarter of 2016 was the highest since the first quarter of 2008.

GDP growth in Q1 was again mainly supported by domestic private consumption. Households’ final consumption grew 3% y/y in the first quarter, slightly lower than the 3.1% growth recorded in the last quarter of 2016. Gross fixed capital formation growth accelerated from 4.6% in Q4 to 5.4% in Q1.

Export of goods grew 14.9% y/y in real terms in Q1, higher than 7.2% annual growth recorded in the previous quarter, thanks to the recovery in foreign demand.

On the production side, IT industry’s growth was the highest at 4.6% in Q1, followed by construction with 3.6%. Meanwhile, the agriculture sector posted the only contraction of 0.4% y/y in the first quarter.

The government’s GDP growth target for 2017 stands at 3.2% while the HNB forecasts 3% growth. However, the central bank will reassess its forecasts in the coming months, according to Vujcic.

The European Bank for Reconstruction and Development (EBRD) increased its 2017 GDP growth forecast for Croatia to 2.9% in the May edition of its Regional Economic Prospects report from 2% in the previous November report.

However, the EBRD warned that the short-term outlook may be negatively affected by potential spill-overs from the financial problems at Agrokor on its subsidiaries and suppliers. Meanwhile, but medium-term growth prospects also remain weak due to long-standing structural weaknesses, including high corporate over-indebtedness, still limited business environment reforms, and slow EU funds absorption – all of which need to be addressed consistently, the EBRD said on May 10.

Croatian central bank (HNB) governor Boris Vujcic said earlier this month that the Agrokor crisis was expected to have a moderate impact of 0.3-0.4pp on Croatian GDP in 2017, while the current political crisis would not have any significant result. 

The IMF hiked its 2017 GDP growth forecast for Croatia to 2.9% in the April edition of its World Economic Outlook (WEO) from a previous forecast of 2.1% in the October edition of the WEO.

European Commission's Forecasts (May 2017)
%	2016	2017	2018
GDP growth	2.9	2.9	2.6
Private Consumption	3.3	3.2	2.8
Public Consumption	1.7	2.3	1.4
Gross fixed capital formation	4.6	5.2	5.7
Exports	6.7	5.2	4.6
Imports	7.3	6.6	5.7
Unemployment	13.3	11.6	9.7
Harmonised index of consumer prices	-0.6	1.6	1.5
Current Account Balance / GDP	2.6	2.9	1.3
General Government Balance / GDP	-0.8	-1.1	-0.9
General Government Gross Debt / GDP	84.2	81.9	79.4
European Commission's Forecasts (February 2017)
%	2016	2017	2018
GDP growth	2.8	3.1	2.5
Private Consumption	3	3.4	3
Public Consumption	1.4	1	1
Gross fixed capital formation	4.2	5.2	5.8
Exports	4.9	4.7	4.3
Imports	6.1	5.2	5.8
Unemployment	12.8	10.8	9.3
Harmonised index of consumer prices	-0.6	1.7	1.6
Current Account Balance / GDP	2.8	1.8	1.3
General Government Balance / GDP	-1.8	-2.1	-1.8
General Government Gross Debt / GDP	84.1	83	81.3
European Commission's Forecasts (November 2016)
%	2015	2016	2017
GDP growth	1.6	2.6	2.5
Private Consumption	1.2	2.7	2.5
Public Consumption	-0.3	0.9	1
Gross fixed capital formation	1.6	4.8	6.1
Exports	10	6	3.5
Imports	9.4	6.6	4.6
Unemployment	16.3	13.4	11.7
Harmonised index of consumer prices	-0.3	-0.9	0.8
Current Account Balance / GDP	5.3	3	2.4
General Government Balance / GDP	-3.3	-2.1	-1.8
General Government Gross Debt / GDP	86.7	85	84.3
European Commission's Forecasts (May 2016)
%	2015	2016	2017
GDP growth	1.6	1.8	2.1
Private Consumption	1.2	1.7	2
Public Consumption	0.6	0.9	1.9
Gross fixed capital formation	1.6	2.6	3.4
Exports	9.2	5.7	4.2
Imports	8.6	5.8	4.7
Unemployment	16.3	15.5	14.7
Harmonised index of consumer prices	-0.3	-0.6	0.7
Current Account Balance / GDP	5.1	4.4	4
General Government Balance / GDP	-3.2	-2.7	-2.3
General Government Gross Debt / GDP	86.7	87.6	87.3
Source: ec