Croat GDP Falls for Fifth Quarter on Consumption, Investment

Feb. 28 (Bloomberg) -- Croatia’s economy contracted for a fifth quarter as personal consumption, investment and industrial production declined because of Europe’s debt crisis.

Gross domestic product fell 2.3 percent in the fourth quarter from a year earlier, the statistics office in Zagreb said today in a preliminary estimate. The economy shrank 2 percent last year, after stagnating in 2011 and contracting in the two previous years.

The Adriatic Sea nation, which is preparing to become the European Union’s 28th member in July 2013, is struggling to emerge from a renewed recession. Industrial output declined 5.6 percent in December from a year ago, while retail trade in the same month fell 6.1 percent.

“Negative trends in industrial production, retail trade and unemployment continued to hurt the economy,” Zdeslav Santic, the chief economist at Soc-Gen Splitska Banka d.d., said by phone before the data release. “This year we can expect a further decrease in personal consumption and capital investment, with possibly only growth in net exports.”

Croatia reduced its 2013 growth forecast on Feb. 20 to a 0.7 percent growth, from an earlier estimate of 1.8 percent growth, citing an investment drought. The one-year-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.

IMF Forecast

The International Monetary Fund said Jan. 21 that Croatia’s economy will stagnate this year. It urged the government to remove barriers to investment and employment in order to return to growth. The European Commission said Feb. 22 that the economy will contract 0.4 percent this year, before returning to “modest growth” in 2014.

“For this year, we expect stagnation, and this forecast is weighted by negative risks regarding personal consumption and investments,” Alen Kovac, a chief economist at Erste Banka d.d. in Zagreb, a unit of Austria’s Erste Group Bank AG, said by phone. “The EU entry will not have a big effect in the near term, except perhaps psychologically, while structural reforms remain the key issue for restarting economy.”

To contact the reporter on this story: Jasmina Kuzmanovic in Zagreb at jkuzmanovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net