The Zagreb Institute of Economics (EIZ) has published the latest Croatian Economic Outlook Quarterly and forecasts a fall in GDP of 0.5% and its outlook for 2014 is a growth in GDP of 1.2%.
EIZ analysts assessed the lack of stable and sustainable sources of growth to be the key challenge for Croatia in the current situation, while economic policy has not done enough to remove the existing obstacles to growth.
An overall package of reforms with a credible plan to implement them could revive market confidence among citizens aimed at reviving growth and employment.
Such a package could gain credibility if it won the support of the European Commission and the International Monetary Fund to facilitate more favourable financing, EIZ analysts say.
Even though the outlook is not bright, the EIZ notes that the decline in activity in industry and construction seems to have come to an end.
An accelerated global growth, the strengthening of the eurozone and intensified domestic investment could lead to a gradual growth in 2014 which, however, will not lead to a growth in personal consumption which will remain weak due to the high unemployment of over 20%.
Inflation is expected to continue contracting to about 2% in 2014 and the exchange rate should remain stable. A positive balance of payments of around 0.5% of GDP is expected because imports grow slower than exports and tourism revenue.
The outlook is subject to two key factors - the impact of Croatia's accession to the European Union and potential growth indicators of Croatia's economy.
The government has taken significant steps in fiscal consolidation and managed to reduce the deficit in 2012. However, government spending has not been reduced sufficiently to satisfy the fiscal rule as stipulated in legislation which requires that its share in GDP be reduced by 1%.
