Croatian GDP Contracts for Third Quarter as Consumption Falters

Croatia’s economy contracted for a third consecutive quarter as personal consumption and industrial production declined because of Europe’s debt crisis.

Economic output fell 2.1 percent in the three months ending June 30 from the same period a year ago, the statistics office in Zagreb said today in a preliminary estimate. Gross domestic product shrank 1.3 percent in the first quarter. The office didn’t release a quarterly GDP estimate.

“While in the first quarter there was modest growth in retail trade as people prepared for a VAT increase to 25 percent from 23 percent from March 1, we’ve seen an intense decline in sales in the second quarter,” Zdeslav Santic, chief economist at Soc-Gen Splitska Banka d.d., said by phone before the data report.

The Adriatic Sea nation, which is set to become the European Union’s 28th member in July 2013, is struggling to revive its economy after two years of recession and a period of stagnation in 2011. Industrial production declined 5.5 percent in June from a year ago while retail trade contracted 5.1 percent in June after falling 4.4 percent in March and 7.3 percent in April.

The government on Aug. 2 reduced the 2012 growth forecast to stagnation, as the effect of Europe’s economic and debt crisis intensifies. The eight-month-old Cabinet of Prime Minister Zoran Milanovic wants to attract investors with 8 billion kuna ($1.3 billion) from EU funds and reconstruction banks for infrastructure and energy projects.

“As Europe’s crisis continues to affect exports, consumption and capital investments, we can expect the downward trend to continue,” Santic said, adding that revenue from tourism in the third quarter should temporarily soften the fall.

The World Bank estimated Croatia’s economy will shrink 1 percent in 2012, while the central bank on July 9 revised its forecast to a 1.6 percent contraction from a 1 percent decline forecast in May.

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