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Croatian Economic Institute Projects 3.2 Per Cent GDP Growth 2005

Posted on: Monday, 8 August 2005, 06:00 CDT

Text of report in English by Croatian news agency HINA

Zagreb, 7 August: Analysts of the Institute of Economics in Zagreb (EIZ) forecast that Croatian positive economic trends will be maintained by the end of this year. They, however, hold that due to not so good start of 2005, this year's Gross Domestic Product will grow by a moderate 3.2 per cent, and project GDP growth at 3.5 per cent in 2006.

According to the latest Croatian Economic Outlook Quarterly which the Institute issued in July, EIZ analysts do not believe that a stronger economic development could be expected owing to measures which the authorities are taking to curb the growth in the external and public debt in the current circumstances when the private sector is not strong enough to enable quicker growth on its own.

Inflation is expected to decelerate along the year reaching an annual rate of 2.8 per cent. In the end of the year, an inflation rate is likely to fall to two per cent with the same rate being maintained in 2006. The assumption for such trends are the stabilization of oil price on the global market and the avoidance of an administratively stimulated price rise such as a higher rise in excise duties or in price of utilities services.

The current account deficit should be below five per cent of GDP.

Higher risks are tied with the height of the fiscal deficit particularly in the context of plans to pay back debts to retirees in 2006, EIZ analysts say.

They also believe that the economic upswing in the European Union will produce positive effects on the Croatian export which, together with the gradual strengthening of investments and the maintenance of relatively strong personal consumption, will be main factors for stepping up the economic growth next year.

Regarding employment and salaries, 2005 is likely to see the deceleration of positive trends from previous years. An unemployment rate may mildly rise due to a rise in the flow of new job-seekers in the contingent of the unemployed that could not be absorbed by newly created jobs. However, the continuation of the economic recovery in 2006 could lead to the acceleration of employment.

The rise of the average salary is likely to reach six per cent this year, which is lower than in previous years.

The institute does not expect any considerable changes in the monetary policy. Measures taken this year in order to curb the external debt as well as determination to continue with such policy should help decelerate the growth in the number of loans granted by the banking sector this year.

Regarding the fiscal policy the authorities are taking conspicuous efforts to curb the deficit, which is evident in the revision of the state budget. As a result, a budgetary deficit should account for 4.2 per cent of GDP this year.

The analysts also believe the launching of the membership talks with the EU would produce a positive effect on the country's economic growth, while the further postponement of the talks would have adverse effects.

They also point out uncertainties about the future economic policy of the Ivo Sanader cabinet which seems to be planning to make important decisions this autumn through drafting a 2006 budget, the definition of a status of the stand-by arrangement with the International Monetary Fund, and new information on the future of the entry talks with the EU.

Source: BBC Monitoring European

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