Page 47 - Central & Southeast Outlook 2020

The largest contributions to the GDP growth in 2019 came from increases in exports of goods and services, which were up by 4.7% y/y in 3Q19, and from household consumption spending, which increased by 3.3% y/y.
“The continuously high level of consumer optimism reflects the steady and continuous increase of households’ consumption which finds support in the good tourist season, further improvement on the labour market (including rising wages in public and private sector), low financing costs and subdued inflation,” Raiffeisen analysts said.
The International Monetary Fund (IMF) and European Bank for Reconstruction and Development (EBRD) both anticipate 3% growth in 2019, and the European Commission 2.9%; all three IFIs expect growth to slow in 2020.
The European Commission projects a growth slowdown to 2.6% and 2.4% respectively in 2020 and 2021.
According to the EC, “uncertainties surrounding global trade and the weakening economic performance expected in some of Croatia’s main trading partners are expected to slow down growth in goods exports throughout the 2019-2021 period”. Exports of services, dominated by the tourism sector, are also expected to grow more moderately, according to the EC.
“As growth in Croatia’s main trading partners moderates, domestic demand will remain the main driver of economic activity. Household consumption remains strong, driven by growing employment and wages as well as low inflation,” the European Commission said.
The EBRD is somewhat more optimistic, having lifted its forecast for 2019 GDP growth by 0.5pp to 3% in November, while maintaining its forecast for 2020 at 2.5%.
It noted the broad-based domestic demand supported by both private consumption and investments, the latter supported by growing disbursements of EU funds.
Looking ahead to 2020, “Growth is likely to be mainly driven by private consumption, which is supported by positive labour market developments and low inflation. Risks to the projection come from possibly weaker demand from Croatia’s main economic partners, such as the eurozone,” the EBRD said.
The development bank also notes that “supply-side constraints for the tourism sector [have] become more apparent. Discussions have been ongoing in Zagreb over how to ensure the tourism sector, which makes up a large part of Croatia’s economy, can continue to expand in the
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