Croatia’s GDP growth slowed down in Q3

GDP growth slowed down in Q3 from the 2.9% y/y expansion reported in Q2, the Croatia’s central bank, HNB said in a press release. The HNB explained that this expectation was substantiated by industrial production and retail trade developments in July-September. Indeed, the former fell by 1.5% y/y on average in the three months of Q3 (after 0.4% y/y growth in the three months of Q2), while the latter increased by slower pace of 3.1% y/y on average in July-September after4.7% y/y expansion in April-June. We also share this view, as does the Economic Institute in Zagreb that projected on Tuesday the economic growth at only 1.9% y/y in Q3 on the basis of its CEIZ leading indicator for September. We may expect that net exports had some positive contribution to growth in Q3 as the export growth exceeded that of imports in the three months of Q3. The central bank said that the positive trends on the labor market continued, but at somewhat slower intensity, which in our view should have backed household consumption growth, but at slower pace than in Q2 (3.6% y/y).

The HNB explained that the easing of the consumer price inflation to 1.4% y/y in September from 2.1% y/y in August reflected mainly the impact of a reduced annual increase of the cost of energy. Core inflation also weakened, the HNB said, which might be possibly reflecting easing domestic demand, which coincides with the abovementioned trend in household consumption. The Governing Council also informed that the central bank has continued its expansionary monetary policy as well as maintaining a high level of liquidity of the domestic financial market. It said that the issuance of commercial loans accelerated while placements for the general population slowed down significantly.

The central bank also said that the net foreign debt decreased significantly in July and August, thanks to the seasonal influx of foreign currency from tourism and the central government’s deleveraging. A significant budget surplus was generated in Q2 while the finance ministry’s cash flows indicate positive trends in Q3 as well, the bank’s council underlined. Note that the consolidated central government budget reported HRK4.34bn surplus as of end-August, widening from HRK1.33bn surplus as of end-July and from HRK2.6bn surplus a year ago with the annual improvement coming on the back of the increasing at faster pace revenues (mainly tax revenues, in particular VAT and excise duties) than expenditures (backed by increasing wages and spending on goods and services, growing social benefits). Recall that FinMin Zdravko Maric has earlier said that this year the budget was to report a surplus again as in 2017 if it were not for the ailing shipyard Uljanik, in particular the pending payments of some HRK4.3bn in activated state guarantees, whereas some HRK2.5bn by end of the year.

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