As evidenced by a recent report by the
Intesa Sanpaolo Study Centre, from 2008 to 2014 Croatia lost about 13% of its GDP with the industrial sector contracting by about 26% and the services sector by more than 7,0%. Only at the end of 2014 did the country show signs of a recovery, albeit timid, with the GDP trend dynamic at 0,2% and then strengthening during 2015 (+1,6%).
The economic recovery started from foreign demand, with the subsequent strengthening of the cyclical phase thanks to domestic demand for private consumption (+0,7%), favored by the reduction in the unemployment rate (down to 17%), and thanks to the demand for investments (+0,3%) .
The favorable conditions for the growth of private consumption and investments continued and in the first half of 2016 GDP grew by 2,7%. And, due to the fall in consumer prices, real household income increased by about 3,7%. At the same time, the unemployment rate dropped to 13% in September. In the same period, industrial production remained on a positive trend (+1,8%) driven by manufacturing (+3,5%), while exports contracted by 2,7%. However theEconomic Sentiment Indicator in September it hovered around its year-to-date highs. Overall, for the year that has just ended, analysts report GDP growth of +2,3%, with an economic dynamic of around 2,0% tendential in the second half of the year: a growth rate that is believed to be substantially maintained also in 2017 , for which a GDP expansion of around +2,1% is expected.
Private consumption and investments will still be the components of demand to provide the greatest contributions to economic growth (for both around +1,2%), while net exports will subtract 0,2% from the GDP dynamic due to growth of imports. Public spending will continue to make a modest contribution (0,1%) due to the fiscal policy aimed at consolidating public accounts and a deficit in line with the Maastricht parameters. On the supply side, the industrial sector, and in particular those sectors more oriented towards exports such as manufacturing, are expected to sustain growth (+1,2%). The services sector, which has returned to growth since 2015 (+1,2%), will also be able to contribute to the dynamics of GDP in 2017 (+1,1%).
Deflation continued in September (-0,9%) bringing the average rate of change since the beginning of 2016 to -1,4%.
The low inflation of international energy prices is having an impact on the dynamics of consumer prices which, although recovering, is continuing beyond expectations. Analysts predict that the trend in consumer prices will in any case remain moderate although deflation could end this year (inflation rate expected at 0,6%) with the progressive recovery of the economy and therefore with upward pressure on consumer prices.
From 2009 to 2014, the percentage of public deficit on GDP stood at values above 5,0% due to reduced growth and spending for transfers to public enterprises which needed financial support during the economic crisis. Subsequently, in 2014 the public debt grew to 86,5% (it was less than 50% in 2008) and then stabilized in 2015 (86,7%) when the budget deficit was 3,2%.
Croatia is in the excessive deficit procedure which opened in January 2014, with which the European central authorities recommended the country to reduce the deficit to 2,7% by 2016 and then to 2,0% in 2017.
The Government's action has so far given good results, so much so that according to analysts' forecasts, the deficit this year will be approximately 1,8% of GDP and the public debt could therefore be reduced to 84% of GDP in 2017. Hence, with a deficit below 2,0% of GDP, and assuming solid long-term nominal GDP growth of 4,8%, public debt could partially correct itself and converge to the Maastricht parameter stabilizing at 60% of GDP.
The Current Account balance turned positive in 2013 (1,0% of GDP) and improved in the following two years to reach 5% of GDP in 2015, an adjustment largely due to a reduction in imports, in addition than to the increase in exports. But now with the strengthening of domestic demand an increase in demand is expected, therefore in perspective the current balance could fall again, and already this year analysts expect a clear reduction in the current surplus which will tend to 1,5%. However, at the moment there are no particular criticalities in the country's main international liquidity indicators.
