Croatia's economic growth in 2011 will be 0.6 percent and the country is unlikely to see moderate growth in the near future, with its growth rate being projected at 0.8 percent in 2012 and at 1.2 percent in 2013, the European Commission reported on Thursday in its regular autumn forecast.
The European Union's executive branch has downgraded forecasts for Croatia's economic upturn as against this spring when it projected economic growth at 1.1 percent for this year and at 2 percent for 2012.
"Although economic activity seems to have bottomed out in the first half of 2011 at 8% below the pre-recession level, it is unlikely that the economy will return to even moderately high growth in the near term," reads the EC document.
"The economy is facing considerable headwinds on the way to a full recovery," the Commission said, adding that the "the high level of indebtedness of households and companies and their need to deleverage are weighing on domestic demand."
"Croatia's economy remained in recession through the first quarter of 2011 when output was still contracting."
In the second quarter, the economy rose by 0.8 percent and in the third quarter monthly data suggest a higher growth rate partly thanks to a strong tourist season.
"Capital spending, however, is still far from recovering," the Commission reports, adding that "construction activity, in particular, has not shown any sign yet of reversing its declining trend."
"Monthly data on industrial production also indicate that an economic recovery has not yet materialised. The working-day adjusted volume of industrial production was 4.4% lower year-on-year in August and the trend is pointing downwards."
"Tourism, on the other hand, is providing substantial support for the economy in 2011," reads the document.
"Investor confidence has taken a severe hit during the recession and will take some time to recover. On the positive side, EU accession, expected to take place in mid-2013, should provide a stimulus to investment activity over the forecast period," reads the document.
The Commission forecasts an inflation rate of 1.5 percent in 2012, to fall down from 2.2 percent as registered in September. The inflation rate is projected at 1.7 percent in 2013.
"On this basis the general government deficit is projected to decline to 5.4% of GDP in 2012 and to 5.2% in 2013. General government debt is projected to increase gradually from 41.2% of GDP at the end of 2010 to 53.8% of GDP at the end of 2013."
Croatia's unemployment in 2011 is put at 13.6 percent, in 2012 it is expected to fall to 13.2 percent, and to 12.4 percent in 2013.
"Following a disappointing performance and a large loss of market share in 2011, Croatia's exports are projected to accelerate moderately over the following two years, but still remain below Croatia's export market growth."
The current account deficit is to reach 1.2 percent of GDP in 2011, in 2012 it is forecast to be reduced to 0.6 percent of GDP, and in 2013 again rise to 1.4 percent.
"Although the banking sector showed resilience during adverse conditions in recent years, the renewed turbulence in international financial markets may become a challenge for Croatia's foreign-owned banks. Maintaining financial stability will be crucial for a recovery of the real economy," the document reads.
"Worsening financing conditions for the foreign parent banks of Croatia's main banks are also likely to result in less favourable credit conditions for households and businesses," the document said, among other things.
