The European Bank of Reconstruction and Development (EBRD) has revised down its earlier outlook on Croatia's economy and now expects a fall this year but does so for the entire region due to the lethargic recovery of the largest economies, primarily Russia.
In its regular outlook the bank on Friday reported that it expected a fall of 0.3% in Croatian economic activities for 2013, whereas in January it had forecasted a growth of 0.8%. Now the bank believes that growth will not occur before 2014 when the economy should grow at a rate of 1.9%.
"Croatia continues to be in recession with negative growth of around 2 per cent in 2012 (notwithstanding the uptick in Q3), and the prospect of another year of falling GDP in 2013," the EBRD says in its latest Regional Economic Prospects report.
"The economy remains weighed down by long-standing problems of uncompetitive industries, labour market inflexibility and a large and inefficient public sector. The country's accession to the EU from July 01 2013 provides an opportunity to benefit from full access to the single market and to substantial EU funds, but an acceleration of reforms is needed to benefit fully from EU membership," says the report.
The EBRD warns all transition countries in emerging Europe that they urgently need to implement structural reforms after it revised down its growth projections for the region to 2.2% compared to January's forecast of 3.1%.
The worsening mood reflected a slowdown, particularly in Russia, even as the threat from turmoil in the Eurozone appeared to be abating. Weaker activity in other large economies such as Poland and Turkey was also weighing on the outlook.
Recent improvements in exports from the CEB and SEE region suggest that the negative impact of the Eurozone debt crisis on trade may be abating.
