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Croatia Economy Shrank for Second Consecutive Quarter on Exports

Croatia’s economy contracted 1.3 percent in the first quarter from the same period a year ago as capital investments declined and Europe’s debt crisis lowered demand for exports.

Gross domestic product shrank 0.4 percent in the previous quarter from a year earlier, the statistics office in Zagreb said today in a preliminary estimate.

“The contraction was softened by a temporary rise in personal consumption in the first quarter, as citizens prepared for a VAT increase to 25 percent from 23 percent from March 1,” Zdeslav Santic, chief economist at Soc-Gen Splitska Banka d.d., said before the data report. “Lower exports, an investment drought and a fall in personal consumption will continue to negatively affect economy.”

The Adriatic Sea nation, which is set to become the European Union’s 28th member in July 2013, is struggling to recover from a two-year recession. The government plans to boost competition and domestic demand to limit the effects of Europe’s debt crisis and allow the economy to grow 0.8 percent this year, Finance Minister Slavko Linic said on Jan. 31. Central bank Governor Zeljko Rohatinski said on May 10 the economy will contract 1 percent this year as personal consumption and investment decrease.

The government in January proposed 4 billion kuna ($700 million) in budget cuts to narrow the deficit to 3.8 percent of GDP from 5.5 percent in 2011. It also said it will lower expenditures in the public sector and reduce subsidies for state companies.

To contact the reporter on this story: Jasmina Kuzmanovic in Zagreb at jkuzmanovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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