Feb. 22 (Bloomberg) -- Croatia’s economy will shrink for a second consecutive year in 2013, when it joins the European Union, as Europe’s recession continues to hurt investment and exports in the Adriatic nation.
Gross domestic product will contract 0.4 percent this year and return to “subdued” growth in 2014 with a 1 percent expansion, the European Commission said today in its forecast. The fiscal deficit will widen to 5 percent of GDP this year, before narrowing to 4.5 percent in 2014, it said.
The forecast risks are “mainly on the downside and particularly related to the lowering of Croatia’s sovereign-debt rating to the speculative grade by several rating agencies, the risk of credit restraint as a result of bank deleveraging, and the possibility of additional expenditure cuts in public budgets,” the report said.
As the world’s largest bloc expands in the Balkans, Croatia still needs to increase competitiveness, strengthen its labor market and boost domestic demand, the report said. EU entry in July should have a positive effect on private investment, it said.
The inflation rate will fall to 3 percent in 2013 and to 2 percent in the following year, the commission said.
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