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Croatia GDP Q3 2021

Croatia: GDP grows robustly in Q3 on strong external sector

GDP expanded a robust 15.8% in annual terms in Q3, marginally below the 16.5% growth tallied in the prior quarter, supported by strong tourist activity which buoyed the external sector.

The slowdown was due to a moderation in domestic activity. Capital spending growth decelerated markedly from the prior quarter (Q3: +7.6% yoy; Q2: +18.1% yoy) as global logistical disruptions and raw material shortages, amid pandemic-related uncertainty, likely impeded investment. Similarly, household spending rose a softer 16.0% year-on-year, following the 18.2% expansion logged in Q2. Meanwhile, government spending tumbled in Q3, falling 4.5% and marking the lowest print since Q3 2001 (Q2: +8.5% yoy).

On the external front, exports of goods and services expanded a record-breaking 48.8% in annual terms, accelerating from Q2’s robust 43.0% growth. This, coupled with a markedly slower increase in imports of goods and services (Q3: +13.1% yoy; Q2: +36.0% yoy), significantly benefited the headline reading.

Growth is expected to cool notably in the final quarter of the year, as traditionally subdued tourism activity in the winter months will weigh on the external sector, while surging numbers of Covid-19 infections from mid-October will dampen domestic activity. Next year, incoming EU funds will spur investment, which, coupled with normalizing tourism activity, will sustain growth overall.

Alen Kovac, an analyst at Erste Bank, said:

“Having in mind our recent upgrade to 8.7% for 2021, clearly robust Q3 2021 figures deliver further upside potential, suggesting a figure well into the 9+% region. Furthermore, the focus is shifting to 2022, with the risks becoming more pronounced with increasing pandemic-related uncertainties and the inflation profile weighing on recovery prospects. We trimmed our 2022 call to 4.8%, reflecting less tourism ‘normalization’ potential after a strong 2021, while the above-mentioned factors mostly remain downside risks to the call.”

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