EC sees Croatia's 2011 GDP growth at 1.1%.

By bne IntelliNews May 16, 2011
The European Commission expects the Croatian economy to expand by 1.1% in 2011 and to rebound to a 2% growth in 2012, the Commission said in its Spring 2011 European Economic Forecast. Although economic activity seems to have bottomed out, it is unlikely that the economy will return to pre-recession growth rates, at least in the short term, the report said. The weak labour-market conditions continue to exert downward pressure on incomes and spending despite a moderate increase in nominal net wages. The high level of indebtedness of households and companies and their need to deleverage are weighing on domestic demand. Credit availability is likely to remain relatively restricted. Investor confidence has taken a severe beating during the recession and will take some time to recover. Export performance is falling short of growth in major export markets. Overall, these headwinds are bound to restrain the recovery. The banking sector has demonstrated resilience during the crisis and is well-capitalised and profitable. The government has announced a set of public investments projects, but they have not yet been budgeted for and their eventual impact on overall investment activity remains uncertain. As exports are expected to increase at a somewhat slower rate than in 2010 while import growth is projected to pick up, the current-account deficit widens to 2.2% of GDP in 2011 and to 2.5% in 2012. Inflation pressures are expected to remain low over the forecast horizon in spite of the upturn in economic activity. The EC forecasts that the harmonised index of consumer prices will speed up to 2.8% in 2011 and slow down to 2.5% in 2012. In 2011, last year's changes in the tax regime will result in lower tax revenues. In spite of restraint on the expenditure side, this will lead to a further increase of the budgetary gap which this forecast projects at 6% of GDP. In 2012, a moderate pick-up in tax revenues in the context of slightly stronger economic activity in combination with continued spending restraint is forecast to result in a narrowing of the fiscal deficit to 5% of GDP. General government debt is set to increase from 40% in 2010 to 49% in 2012.

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