Croatian Economy Contracted in Fourth Quarter as Exports Slowed

Croatia’s economy contracted for the first time in three quarters in the final three months of last year as Europe’s debt crisis damped demand for the Balkan nation’s exports.

Gross domestic product shrank 0.2 percent from the same period of the previous year, the statistics office in Zagreb said today in a preliminary estimate released on its website. The median estimate of four economists in a Bloomberg survey was for gross domestic product to drop 0.3 percent. The economy expanded 0.2 percent for the whole of 2011, the office said.

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 hopes a plan to boost competition and domestic demand will limit the effects of the crisis and allow the economy to grow 0.8 percent this year, Finance Minister Slavko Linic said on Jan. 31.

“This year we expect an economic decline, with the extent depending on developments in the euro zone and on the outcome of the government’s investment strategy,” Zdeslav Santic, chief economist for Soc-Gen Splitska Banka d.d., said by phone before the data release. “Capital costs for Croatia are such that they hinder large investment projects.”

Croatia’s credit rating was lowered a year ago to BBB-, one step above junk, at Standard & Poor’s, which cited a “deteriorated fiscal position and continuously weak” external financing.

The government last month 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. Fitch Ratings said on Feb. 15 the budget proposal is “encouraging,” adding it will conclude a ratings review by the end of March.

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