Investment in Croatia

Croatia - Investment

GDP contracts at softer, albeit still pronounced pace in Q3

GDP slid 10.0% year-on-year in Q3, falling at a softer pace than Q2’s 15.4% plunge, as the easing of Covid-19-associated restrictions bolstered activity. That said, Q3’s reading still marked the second largest contraction in at least two decades. The softer downturn reflected weaker contractions in both domestic and external demand. Household consumption declined at a softer rate of 7.5% year-on-year in Q3, after the 14.0% dive in Q2. In addition, fixed investment fell 3.0% in Q3, moderating from the 14.7% contraction logged in the previous quarter. Meanwhile, public spending picked up, expanding 1.5% in Q3 (Q2: +0.5% yoy) on the back of fiscal stimulus to address the harsh impact of the pandemic.

On the external front, exports of goods and services fell at a slightly softer pace of 32.3% on an annual basis (Q2: -40.7% yoy), with the most significant contraction recorded in services exports, as the health crisis and associated restrictions continued to weigh on the crucial tourism industry. Meanwhile, imports of goods and services fell at a markedly softer pace of 14.1% in Q3 (Q2: -27.5% yoy).

Despite Q3’s improvement, soaring Covid-19 cases and the tightening of restrictions since mid-October are expected to hinder the recovery at the tail end of the year. However, GDP is seen bouncing back to growth next year on the back of firming foreign demand, which should revitalize the all-important tourism industry. Inflows of EU funding, amid improving absorption capacity, should provide further support.

FocusEconomics panelists forecast GDP to expand 4.8% in 2021, which is down 0.2 percentage points from last month’s estimate. For 2022, our panel sees GDP growth at 3.9%.