The World Bank raised its GDP growth forecast for Croatia to 2.9% in 2019 in its latest Migration and Brain Drain report, up from 2.5% projected in June. The WB also upped the economic growth projection for 2020 to 2.6% from 2.5% expected in June, while it kept its forecast for 2021 at 2.4%.
The improving forecast for 2019 was related to the stronger growth in employment, wages and household borrowing, expected to support household consumption, the WB noted. Investment activity was expected to make a significant contribution to the GDP growth, as well, on the back of strengthening EU funds absorption in the public and private sector. Solid domestic demand will support import growth, while exports will remain at their 2018 level, which will result in deteriorating trade balance position, the WB said. In the next two years GDP growth will ease to an average 2.5% due to expectations for slowing domestic consumption and decelerating employment and wage growth, according to the report.
The fiscal position will stay close to balance in 2019 – 2021 as revenues were projected to increase further and interest expenses to decline. Public debt was projected to fall to 64.6% of GDP by end-2021.
The risks to the economic outlook for Croatia are tilted to the downside and are mostly related to weakening external demand for Croatia’s goods, the WB noted. On the domestic side, the risks stem from strong pressures for wage hikes in the public sector and potential rising spending before the general elections in the autumn of 2020. The WB added that Croatia needs to undertake a broad structural reform agenda to boost the currently low productivity by raising the quality and mobility of human and physical capital. The WB stressed that business environment constraints due to an inefficient public sector, both as a service provider and a regulator, and low labour market inclusiveness, should be tackled decisively.