The European Bank for Reconstruction and Development (EBRD) has downgraded Croatia's economic outlook - growth is expected to contract by 1.2 per cent and recovery is expected in 2013, according to the EBRD’s latest economic outlook.
"In Croatia, the economic situation appears to be worsening. Output has declined for two consecutive quarters (-0.7 per cent q-o-q in Q4 2011 and -1.6 per cent q-o-q Q1 2012) and thus the economy is now technically in recession. Growth for the rest of the year is likely to be either nonexistent or negative, reflecting the overall lack of competitiveness in the economy. However, the signing of the EU Accession Treaty at the end of last year and the realistic prospect of full EU membership in mid-2013 are positive signals for the medium term and may help to revive confidence and investment," the EBRD said.
Growth in countries across the transition region slowed down markedly as a result of the widening spillovers from the Eurozone crisis. A large majority of transition economies recorded weaker year-on-year growth in the first quarter of this year, relative to the third quarter of last year. Growth in the transition region is expected to drop from 4.6 per cent in 2011 to 2.7 per cent in 2012 before modestly picking up to 3.2 per cent in 2013. The Euro area crisis will continue to negatively impact economies in the transition region that are the most intertwined with those of the Eurozone, the report said.
The negative impact of the Eurozone crisis on emerging Europe is spreading further east as lower global demand is feeding through to lower commodity prices and generally lower risk appetite. These are now having a negative impact, particularly on Russia, according to the latest economic outlook.
South-eastern Europe remains particularly vulnerable to events in the single currency zone. The report noted that after a first quarter contraction in Romania, "the weak external environment and the political crisis that arose in July could negatively affect short-term growth."
The report added that Serbia’s economy was showing several weaknesses at present. While risks mainly stemmed from exposure to the Eurozone, domestic policies were now adding to uncertainty.
The report also warned that investment remains well below its pre-crisis level in most countries, negatively impacting future growth.
