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Recession continues but GDP contraction slows down

ZAGREB, May 26 (Hina) - The recession continued in Croatia in the first quarter of 2013, for the sixth consecutive quarter, but thanks to the growth of industrial output, it is believed the decline of gross domestic product will be considerably slower than in the previous quarter.

The State Bureau of Statistics will release next week the first prediction of GDP in Q1 2013 which will show that the economy contracted for the sixth consecutive quarter.

Eight macroeconomists polled by Hina predict the economy contracted 1.2 per cent on the year. All predict a decline ranging from 0.3 to two per cent.

Although steep, the decline will be lower than in Q4 2012, when GDP sank 2.3%, the biggest contraction since Q2 2010.

The domestic economy has been contracting since early 2009. In Q3 2010 and Q2 2011, it technically surfaced from the recession, but the negative trends resumed. Last year, GDP contracted 2%.

After four years of continuous decline, in Q1 2013 industrial output grew 1.1%.

The decline in the construction sector was also stopped, with construction works up 1.3% on the year in February.

Lending at the beginning of the year mildly grew from the end of 2012. However, because of lower household incomes and consumer pessimism, consumption continues to decline. In March, retail trade contracted for the 13th consecutive month, while in Q1 the average decline was about 4%, as against 0.4% in Q1 2012.

Because of the recession in the eurozone, Croatia's biggest trade partner, demand for imports there is weakening. Croatian exports in Q1 2013 declined 7.9% on the year.

Eight macroeconomists polled by Hina predict that GDP will contract 0.9% this year, whereas three months ago they predicted a decline of 0.4%. All expect the economy to contract, with predictions ranging from 0.4 to 2%.

The Zagreb Institute of Economics recently changed its prediction of economic decline for this year from 0.2 to 0.5%.

The International Monetary Fund predicted in April that Croatia's GDP will slip 0.2% this year. Last autumn, it predicted a rise of 1%.

The European Commission predicted in February that the Croatian economy would contract 0.4% this year, but in early May it upped the contraction to 1%.

However, trends on the domestic market in the second half of 2013 should be somewhat more favourable than last year, especially thanks to the tourism season, but the current situation in Croatia and the European Union does not indicate a sufficient recovery of domestic and foreign demand that would lead to GDP growth, one of the macroeconomists has told Hina.

Another has mentioned that accession to the EU on July 1 will provide access to cohesion and structural funds.

However, there are risks, as the continuation of the longest recession in the eurozone since 1999, Croatia's exit from the Central European Free Trade Agreement and additional liberalisation of imports because of Croatia's EU accession can adversely impact Croatian exports. A lot will depend on domestic investments, the macroeconomists say, adding that personal consumption this year will likely remain very low because of unemployment and declining real salaries.

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