Investment in Croatia

Croatia - Investment

GDP hits record growth rate in Q2 on low base effect

GDP bounced back solidly in the second quarter, expanding 16.1% in annual terms, contrasting Q1’s 0.7% slide. Q2’s reading logged the highest growth rate on record but was flattered by a low base effect.

The upturn came on the back of a broad-based improvement in activity. Household spending rebounded in the quarter, expanding 18.4% year-on-year and putting an end to a four-quarter streak of contractions (Q1: -0.4% yoy). Moreover, fixed investment growth accelerated to 18.3%, markedly above the 4.6% rise tallied in the prior quarter, while government consumption gained pace, hitting an over one-year high (Q2: +4.0% yoy; Q1: +0.2% yoy).

On the external front, exports of goods and services expanded a robust 40.9% in annual terms in Q2, swinging from the previous quarter’s 0.9% dip, likely supported by rising numbers of tourist arrivals, which should have boosted the crucial hospitality sector. Similarly, imports of goods and services rebounded, growing at a double-digit rate of 30.3% (Q1: -2.1% yoy).

This year, the economy is expected to grow healthily in line with firming domestic and foreign demand. Moreover, incoming EU funds should provide an additional boost. However, much depends on the evolution of the Delta variant outbreak in the region. Unlike most Mediterranean competitors, Croatia has managed to maintain new Covid-19 infections at relatively low levels this summer, likely increasing its attractiveness as a travel destination. Aside from a positive impact on the external sector, this also lowers the likelihood of stricter curbs following the end of tourism season. However, with less than half of the population fully vaccinated, pandemic-related uncertainty still clouds the outlook.

FocusEconomics panelists forecast GDP to expand 6.7% in 2021, which is up 0.4 percentage points from last month’s estimate. For 2022, our panel sees GDP growth at 4.6%.