Economic Analysis - Growth To Cool As External Demand Softens - MAR 2018

BMI View: Following a strong 2017 , Croatian real GDP growth will slightly decelerate over the next two years as a strong outlook for consumption and construction compensate for weaker external dynamics. That said, in order to boost long-term growth potential, structural reform implementation needs to be accelerated.

We have slightly revised up our Croatian headline real GDP growth forecast for 2017 from 2.9% to 3.1%, reflecting the ongoing strength of domestic demand and favourable external conditions. The flash estimate of real GDP growth for Q317 came in at 0.9% q-o-q and 3.3% y-o-y, accelerating from 3.0% y-o-y in Q217, marking the strongest rate of growth since Q416. Looking ahead, buoyant domestic demand will continue to drive economic activity, although weakening external demand will see headline growth slow to 2.8% and 2.7% in 2018 and 2019, respectively. That said, real GDP will remain well below pre-crisis levels until 2020, making it an imperative that the government ramps up structural reform implementation against a backdrop of poor demographics and elevated public debt.

Domestic Demand To Remain At The Forefront Of Economic Activity

Domestic Demand Driving Growth
Croatia - Real GDP & Expenditure Components, % chg y-o-y
Source: Croatian Bureau of Statistics, BMI

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