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Croatian GDP Contracts for Second Quarter as Crisis Damps Demand

Croatia’s economy contracted for a second consecutive quarter as capital investments declined and Europe’s debt crisis lowered demand for exports.

Economic output fell 1.3 percent from the same period a year ago, matching the preliminary figure released on May 31, the statistics office in Zagreb said today. Gross domestic product shrank 0.4 percent in the previous quarter from a year earlier.

“This trend will continue as we expect a further fall in capital investment coupled with weak domestic demand,” Zdeslav Santic, chief economist at Soc-Gen Splitska Banka d.d., said before the data report. The decline 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, he added.

The Adriatic Sea nation, which is set to become the European Union’s 28th member in July 2013, is struggling to recover from two years of recession and a period of stagnation in 2011.

Government consumption declined 1.5 percent in the first quarter, while gross fixed capital formation decreased 2.8 percent and household demand dropped 0.3 percent, the statistics office said in the statement.

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 and the World Bank predicted the economy will shrink 1 percent this year.

The government in January also proposed 4 billion kuna ($673.4 million) in budget cuts to narrow the deficit to 3.8 percent of GDP from 5.5 percent in 2011. In addition it said it will lower expenditures in the public sector and reduce subsidies for state companies.

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