Croatia: Economy grows at softest pace in over five years in Q1 on initial Covid-19 effect
Economic activity moderated in the first quarter on the initial impact from the Covid-19 pandemic, with GDP increasing just 0.4% on an annual basis (Q4 2019: +2.5% year-on-year), marking the worst reading since Q3 2014.
Household spending growth fell to 0.7% in Q1 (Q4 2019: +4.0% yoy), a four-and-a-half year low, due to the confinement measures enacted to curb the spread of the pandemic. In addition, fixed investment growth slowed to 3.1% in Q1 from 4.0% in the previous quarter. However, public spending grew at the fastest pace in over a decade, expanding 4.8% (Q4 2019: +3.5% yoy)—cushioning the overall slowdown.
Exports of goods and services contracted 3.0% in Q1, marking the worst result since Q2 2012 (Q4 2019: +5.6% yoy). In addition, imports of goods and services dropped 5.8% in Q1 (Q4 2019: +0.1% yoy). Taken together, the external sector made a positive contribution to overall growth in Q1, as was the case in the prior quarter.
GDP is set to record the largest contraction since 2009 this year, as the Covid-19 outbreak ravages the important tourism sector. The pandemic will also depress export demand, particularly from key partner Italy, while government finances are seen deteriorating notably this year.