Economic Outlook Darkens in Croatia

Croatia’s GDP likely to fall for a third quarter in a row, as unemployment mounts and living standards tumble, creating further headaches for the embattled government.Official figures on GDP growth in the second quarter of this year are to be published at the end of the week, but economic analysts warn that Croatia’s GDP is expected to fall by at least 1.7 per cent.If so, it will be third annual quarter in a row that the economy has fallen. Economists also warn that no recovery should be expected at least before the end of this year.

Zrinka Zivkovic-Matijevic, Raiffeisen bank’s Croatia analyst, estimated on Monday that the GDP fall in the second quarter of this year could reach even 2.9 per cent.

She attributed the likely fall to an increase in unemployment and a drop in consumer spending.

The government has recently stopped contesting such pessimistic predictions by independent experts.

At the beginning of this year, officials announced expected GDP growth of about 0.8 per cent this year.

But Prime Minister Zoran Milanovic corrected this prognosis last week, saying in a TV interview that he expected GDP growth to stay at zero this year.

Unemployment is steadily rising, and this week peaked at more than 300,000. Croatia has lost more than 100,000 work places since the global crisis hit the country in 2009.

But this year unemployment continued to grow during summer for the first time, despite the traditional hike in seasonal employment in tourism.

Minister of Work Mirando Mrsic on Monday explained that “the number of unemployed is rising because every day we lose more working places than we create”.

Mrsic said that unemployment would continue to rise until February or March next year, expressing the hope that it would then start to fall.

Some fear as many as 350,000 people could be jobless in Croatia by Christmas.

Former economy minister Ljubo Jurcic warned recently that social unrest will threaten the country if unemployment reaches 400,000.

Rising unemployment is partly down to the government’s failure to boost investments.

At the beginning of this year, the government announced it was investing 8 billion kuna (1.1 billion euros) in public works during this year.

But finance minister Slavko Linic admitted in an interview at the end of July that public enterprises had failed to make major investments.

Croatia meanwhile expects a credit rating evaluation in the autumn, and the government hopes that fresh public spending cuts will be enough for Croatia to maintain its current credit rating status.

But unions are increasingly restive. Public servants unions have rejected the government’s proposal for further cuts in wages, announcing possible strikes for the autumn.

A severe drought, which has lasted for months, is making matters more difficult. Estimates are that half a billion kuna (about 70 million euro) will be lost because of drought damage.

Farmers have already announced food price rises this autumn, requesting compensation from the government.

All of that could lead to an overall drop in living standards of at least 5 per cent this year, economic analyst Zeljko Lovrincevic estimated.

“Tourism can solve nothing,” another analyst, Guste Santini, said recently, expressing fears that there is no sign of light at the end of the tunnel.