Croatia: GDP contracts at record pace in Q2
August 28, 2020
The economy contracted at the sharpest rate on record in the second quarter owing to the Covid-19 outbreak and associated containment measures. In Q2, GDP plummeted a historic 15.1% in year-on-year terms (Q1: +0.4 yoy), according to a preliminary estimate published on 28 August. The downturn was greater than market analysts’ expectations and marked the first contraction since Q2 2014.
The downturn reflected a heavy contraction of both domestic and external demand. Household consumption fell a staggering 14.0% on an annual basis in Q2, contrasting Q1’s 0.7% increase and reflecting the impact of the lockdown measures in place between mid-March and early May. Moreover, fixed investment collapsed 14.7% year-on-year in Q2, swinging from the 3.1% growth recorded in the previous quarter, amid increased economic uncertainty. Lastly, government spending growth moderated to 0.7% (Q1: +4.8 yoy).
On the external front, exports of goods and services collapsed 40.6% annually in Q2, significantly more than Q1’s 3.0% drop and reflecting the negative impact of foreign lockdowns on goods export demand and the massive blow dealt to Croatia’s tourism industry due to travel restrictions. In addition, imports of goods and services fell at a steeper pace of 28.1% in Q2 (Q1: -5.8% yoy). The external sector therefore subtracted 4.1 percentage points from the headline reading, contrasting the 2.2 percentage-point contribution to overall growth recorded in the previous quarter.
Although the strict lockdown measures have been lifted, the aftereffects of the pandemic, which have pummeled domestic and foreign demand, disrupted supply chains and reduced tourism, are likely to continue dragging on economic activity for the rest of year. Moreover, the recent rise in coronavirus cases further escalates uncertainty, representing another downside risk.