Croatia’s economy will contract more than expected this year before returning to growth in 2013 as external conditions and subdued domestic demand slow the recovery from a recession, the International Monetary Fund said.
Gross domestic product will shrink 1.5 percent in 2012, the Washington-based lender said in a statement today following a visit to the Adriatic Sea nation. The estimate is revised from a February forecast for a 1 percent contraction. GDP next year will expand 0.75 percent, it added.
“Sustained recovery from the economic crisis in 2009 remains elusive,” the IMF said in the statement. “Further on, barriers to investment and employment growth, if not forcefully addressed, will keep potential growth modest.”
Croatia, which is set to become the EU’s 28th member in July 2013, stands to receive about 10 billion euros ($12.7 billion) in EU grants through 2020. The country is struggling to revive the economy and boost investment after three years of recession and stagnation.
The 10-month-old government of Premier Zoran Milanovic has vowed to reduce public sector spending remove obstacles to investment to speed up the sale of state companies.
The IMF “welcomed the recent adoption of the government’s structural reform program, which makes a good start on the road to restore competitiveness and spur growth,” the report said. “Strengthening EU funds absorption capacity would allow Croatia to take full advantage of EU accession by supporting growth-enhancing investments.”
The government estimated the economy will stagnate this year, while the European Commission said on Nov. 7 it will shrink 1.9 percent.