Croatia: GDP drops at milder pace in Q1
GDP dropped at a significantly softer pace of 0.7% in annual terms in the first quarter of the year, following Q4’s 7.2% plunge. However, the result still logged the fourth successive quarter of falling output. Q1’s notably milder contraction was spearheaded by an improvement in household spending, which shrank 0.4% year-on-year, easing markedly from the 4.5% slide tallied in the prior quarter. Meanwhile, fixed investment gained further traction in Q1, expanding 4.6% and edging up from Q4 2020’s 4.2% rise. However, public spending lost significant steam in the quarter, growing a marginal 0.2%, which was well below the 3.1% increase logged in the previous quarter.
On the external front, exports of goods and services dropped 0.9% on an annual basis in Q1, falling at a less pronounced pace than Q4 2020’s 9.8% dive, amid a nascent recovery in key trading partners. Similarly, the pace of decline in imports of goods and services moderated to 2.1% in Q1 (Q4 2020: -7.6% yoy).
Looking ahead, the economy is poised to emerge from 2020’s pandemic-induced contraction this year on the back of strengthening domestic activity, in line with easing Covid-19 restrictions and supported by new inflows of EU funds. On top of this, progressing vaccination campaigns domestically and abroad should kick-start the crucial tourism industry and bolster the external sector. Any delay to the vaccine rollout poses a key downside risk.
Commenting on the growth outlook, Rory Fennessy, assistant economist at Oxford Economics, stressed that the impact of restrictions will continue to be felt in Q2:
“Growth will accelerate sharply in H2 after restrictions are substantially eased. […] The vaccine rollout still lags the EU average but is showing signs of accelerating as EU-wide issues in securing a reliable vaccine supply have been largely resolved. But many of the remaining restrictions on activity are unlikely to be eased before the end of Q2, while international travel restrictions and pandemic uncertainty will prevent a normal summer tourism season.”