GDP in Croatia

Croatia - GDP

Growth hits over two-year high in Q1

The economy strengthened notably at the outset of the year, according to detailed GDP data released by the Croatian Statistical Institute on 31 May. Annual economic growth accelerated to 3.9% in the first quarter, up markedly from Q4 2018’s 2.3% year-on-year expansion and marking the best result since Q4 2016.

Buoyant domestic demand led the first-quarter pick-up. Private consumption growth hit an 11-year high (Q1: +4.4% yoy; Q4 2018: +3.9% yoy) thanks to healthy real wage gains and strong credit growth, and despite higher unemployment. Moreover, fixed investment grew at the fastest rate in over a decade (Q1: +11.5% yoy; Q4: +6.4% yoy) amid ample corporate lending and the deployment of EU structural funds, while public expenditure growth also quickened markedly (Q1: +3.1% yoy; Q4: +2.3%).

On the external front, exports of goods and services increased a robust 4.6% year-on-year in Q1 (Q4 2018: +1.3% yoy), despite relatively soft activity in the EU and primarily on the back of surging merchandise shipments. Meanwhile, imports jumped 7.7% in annual terms, reflecting solid demand dynamics at home and accelerating from the previous quarter’s 6.6% rise. Taken together, the external sector subtracted from headline growth, although less than in the previous quarter.

Looking ahead, growth is expected to remain healthy this year, largely buttressed by solid private consumption amid an improving labor market. In addition, favorable financing conditions and positive business sentiment should propel fixed investment ahead, which should also be supported by EU-linked funding. A further slowdown in the EU poses a key downside risk to the outlook.

Croatia GDP Forecast

FocusEconomics panelists expect GDP to rise 2.7% in 2019, which is unchanged from last month’s estimate. In 2020, the panel also projects economic growth of 2.5%.