Croatia GDP Q4 2016


Croatia: GDP growth speeds up further in Q4

March 1, 2017

The Croatian economy accelerated and recorded another period of robust growth in the final quarter of 2016, supported by strong private consumption and by a pick-up in fixed investment. GDP growth strengthened from the 2.9% recorded in the third quarter to 3.4% in Q4, the biggest expansion in nine years as well as the ninth consecutive quarter of growth. The final quarter’s healthy result brought full-year 2016 GDP growth to 2.9%, up from 1.6% in 2015 and the highest reading since pre-crisis 2007.

Growth in Croatia continues to be underpinned by robust domestic demand, whose contribution to growth was plus 3.7 percentage points and which is offsetting the external sector’s negative contribution to growth. The ongoing expansion in private consumption—which grew at an almost nine-year high of 3.6% in Q4, up from Q3’s 3.4% increase—has been underpinned by several factors, such as growing tourist arrivals, rising wages, recovering consumer credit and expectations of lower income taxes. More upbeat business sentiment, expanding business lending and upcoming corporate tax cuts led fixed investment to grow 4.6%, which was a stronger expansion than Q3’s 2.9%. Conversely, growth in government consumption moderated from 2.1% in Q3 to 1.8% in Q4.

Meanwhile, the external sector subtracted 0.3 percentage points from growth. Imports of goods and services accelerated from a 6.0% increase in Q3 to a 9.7% rise in Q4, reflecting the strong domestic demand. Robust demand from the country’s main trading partners in the EU caused exports to expand 9.7% in the fourth quarter, up from the 6.3% increase observed in Q3, boosting manufacturing production.

The robust growth in the final quarter reflects that the recovery is finally gathering momentum, which bodes well for Croatia’s outlook. In this respect, Hrvoje Stojic, Economic Research Director at Addiko Bank, said:

“We keep our view of an above-potential 3.5% growth in 2017 due to a plethora of reasons, including (i) stronger consumption growth, (ii) better investment outlook, (iii) another record tourist season, (iv) export competitiveness gains and (v) newly found space for fiscal easing (after two years of substantial tightening)”.

FocusEconomics panelists expect GDP to rise 2.6% in 2017, which is up 0.1 percentage points from last month’s estimate. In 2018, the panel expects economic growth of 2.5%.

Author: Massimo Bassetti, Economist

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