In its previous publication "Croatian Economic Outlook Quarterly", the EIZ forecast economic growth in 2015 at +0.7.
The latest forecasts of economic growth have been revised down compared to forecasts made in July, as negative trends have reappeared despite positive trends in the foreign trade sector, the EIZ states in a press release issued on Monday on the occasion of the latest "Croatian Economic Outlook Quarterly".
"We now expect GDP to decline 0.6 percent this year, down by 0.1 percentage points from our July forecast. This change is mostly due to a considerable decline of investments expected to reach 4 percent for the year as a whole," reads the press release.
"Strong dynamics registered in the foreign trade sector, especially in the exports of goods, is expected to weaken as it results partially from methodological changes. Negative trends passed through from this to the next year, tightened fiscal situation and heightened uncertainties over policy will result in softened recovery potential in the upcoming year. Therefore, our GDP growth projection for 2015 is now set at 0.2 percent, down from 0.7 percent projected three months ago. Positive contributions to next year's recovery are expected from investments and export growth, although these are to be much weaker than what we expected earlier."
The Institute states that although the first quarter of 2014 saw favourable trends to a certain extent, Q2 2014 saw again a contraction of the entire economic activity, and EIZ analysts expect the negative trend to continue until the end of this year in light of the fact that monthly statistics in Q3 indicate a continued contraction in industrial output and in the construction sector as well as stagnation in the retail sector.
Inclement weather conditions have affected agricultural production, the EIZ notes.
Unemployment has been declining since this spring and it is likely to be at a lower rate for the remainder of the year compared to the corresponding period of 2013, however, the employment rate has not been rising, according to the EIZ analysis.
Therefore, EIZ analysts project the contraction of the country's GDP in Q3 2014.
"No-growth environment, high fiscal deficits and booming public debt multiply the need for resolute actions taken by responsible leaders in order to gain control over negative trends. Croatia is already involved in corrective mechanisms of Excessive Deficit Procedure and Macroeconomic Imbalances Procedure. However, there is an impression that policy-makers' commitment to the implementation of key recommendations issued within these procedures is more formal than genuine. This leads us to expect that EDP targets will not be taken as binding in defining the 2015 Budget. On top of that, the latest fiscal figures from October 2014 show much higher public debt level than was previously expected. It is highly possible that Croatia will soon be requested to undertake more serious consolidation efforts in EDP than those in current recommendations dated from January 2014. If no serious consolidation actions are taken shortly, all options for fiscal developments are open in the near future, including stabilisation programs involving the IMF and the EU," the Institute warns.