The projections, published in the Croatian Economic Outlook Quarterly, indicate a 4.5 percent growth of GDP in 2007, to be boosted by a faster growth of consumption and exports, the Institute said in a statement issued on the occasion of the release of its publication.
Personal consumption will grow as a result of salary growth and favourable labour market trends, as well as higher transfers to budgetary users.
The projected export growth is based on positive trends in commodity export and significant improvements in the export of services, particularly in the tourism sector.
Export growth is expected to result in a decrease of the current account deficit, from 8.1 percent of GDP in 2006 to 7.4 percent in 2007.
The inflation rate in 2007 is expected to remain relatively low, at 2.7 percent on average (in 2006 it was 3.2 percent).
Analysts of the Institute of Economics also warn about several significant risks in the accomplishment of the projected results.
One of the risks is related to the consequences of measures introduced by the Croatian National Bank with the aim of curbing credit growth. HNB measures will primarily have an impact on credit conditions for households and small businesses, and only to a smaller extent on credit conditions for medium and large businesses. Nevertheless, this could lead to the slowing down of personal consumption and investment growth and of economic growth in general.
As for the fiscal policy, the analysts warn that efforts to accomplish the projected fiscal deficit of 2.8 percent of GDP in 2007 could turn out to be difficult due to increased government spending for election purposes, which may postpone the solving of structural problems.
In comparison to the Economic Outlook Quarterly released in October last year, the Institute stuck by its projection of economic growth of some 4.5 percent in 2007, but it slightly modified the projected growth rate for 2006 from 4.7 percent to 4.8 percent.
The favourable economic developments in 2006 were accompanied by employment growth and the slowing down of inflation, but also by negative trends in the foreign trade balance, the Institute said, adding that 2006 was marked by a relatively strong monetary expansion, as well as by a continued growth of foreign borrowing, which prompted the central bank to introduce measures to curb credit growth.