The EBRD released its latest Regional Economic Prospects report at its annual meeting in Tbilisi, the capital of Georgia, saying that the economic outlook for Central and Southeastern Europe is improving on the back of eurozone monetary easing, but prospects further to the east of the transition region have worsened, as the impact of Russia's recession intensifies.
The bank predicts overall stagnation in 2015 across all 35 countries covered and meagre expansion of just 1.4% in 2016. By comparison, in its January forecast, the EBRD projected a GDP decline of 0.1% in the region in 2015 and 0.1% growth in 2016.
The EBRD revised up its growth forecast for the Central Europe and the Baltic States region, which includes Croatia, mostly due to the monetary stimulus in the euro area and the positive impact of lower oil prices. Average growth in the eight countries in this region in 2015 has been upgraded from 2.6% in the January forecast to 2.9%, and is expected to increase slightly in 2016 to 3%.
The projected growth rate of 0.5% in 2015 makes Croatia the poorest performer in the group, because Slovenia, Slovakia, Lithuania, Latvia, Estonia and Hungary are expected to see growth of above 2% and Poland of above 3%.
"The recession in Croatia continued for the sixth year in 2014, with GDP growth estimated at -0.4 per cent, marginally better than expected. Domestic demand remains subdued with investment being the largest negative contribution to growth in 2014. We keep our forecast for 2015 at a timid 0.5 per cent, as Croatia should benefit from reduced oil prices and some improvement in eurozone demand. The necessary fiscal adjustment will most likely be postponed for after the elections due later this year. Owing to the lack of large-scale reforms improving the business environment, strong pressure for fiscal adjustment under the EU's excessive deficit procedure together with weaker contribution from external factors we expect again only marginal growth in 2016 at 0.5 per cent," the report says.
According to the EBRD's annual report, last year the bank invested EUR 297.5 million in Croatia through 21 projects, either in the public or private sector or through regional initiatives. Overall, by the end of 2014 the EBRD had invested EUR 3.1 billion in Croatia through 170 projects.