Croatia: Economic growth eases in Q2
August 28, 2019
The economy lost momentum in the second quarter, according to detailed GDP data released by Croatia’s Statistical Institute (CBS) on 28 August. Annual economic growth eased to 2.4% in Q2, down from the 3.9% expansion logged in Q1 which had marked the best showing since Q4 2016.
Both weaker domestic and external demand drove the second-quarter slowdown. Private consumption lost traction amid softer real wage gains, after growing at an over-decade high pace at the outset of the year (Q2: +2.7% year-on-year; Q1: +4.4% yoy). Similarly, fixed investment shifted into a lower gear but remained strong nonetheless, increasing 8.2% in annual terms (Q1: +11.5% yoy). For its part, public expenditure accelerated for the second successive quarter (Q2: +3.9% yoy; Q1: +3.1% yoy), propping up the overall expansion.
On the external front, exports of goods and services cooled (Q2: +1.3% yoy; Q1: 4.6% yoy), led by a fall in merchandise shipments. However, a buoyant tourism industry, which boosted services exports, cushioned the slowdown to a large extent. Meanwhile, import growth slid in line with waning domestic demand (Q2: +6.7% yoy; Q1: +7.7% yoy). Taken together, the external sector consequently subtracted more from headline growth than it did in the previous quarter.
Economic activity is projected to pick up this year, mainly driven by robust domestic demand. Healthy wage and employment growth should spur household consumption, while continued EU-structural funding should boost capital spending. External headwinds such as stronger competition from other tourist destinations and weaker EU demand cloud the outlook.
Author: Javier Colato, Economist