Croatia's seasonally-adjusted retail sales rose by 7.8% y/y in June, escalating further from a 3.3% annual rise in May, preliminary data from the statistics institute showed on July 28.

June growth was the highest annual growth in retail sales during the last ten years, according to Hina.

Retail sales in Croatia posted annual growth throughout a record 34 months period until June, supported by the strengthening of the kuna, seasonal employment and tax cuts. Retail sales in Croatia have also been supported by increasing household consumption since 2015, and by the increase of visitors during the tourist season. However, recent troubles at retail giant Agrokor weigh on the outlook and the current growth performance.

In seasonally-adjusted terms, retail sales also jumped by 4.5% in June following a 0.5% m/m decrease in May.

Struggling Agrokor’s subsidiary Konzum, Plodine, Kaufland, Lidl and Spar Hrvatska are the top five retailers in the Adriatic country. 

Consumption in 2017 is likely to be supported by a government measure to increase the minimum gross wage by 5% to HRK3,276 in 2017. Croatian salaries were on an upward trend in 2016 supported by changes in personal income taxation legislation, a move which increased consumption. 

The European Commission said in its May Forecast it expects Croatia’s private consumption to expand by 3.2% in 2017, lower than a previous forecast of 3.4% in Winter Forecast. In Q1, retail and tourism remained strong, and confidence was at a record high, the Commission said.

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.

The short-term outlook may be negatively affected by potential spill-overs from the financial problems at Agrokor on its subsidiaries and suppliers, 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.