The World Bank has revised its forecast that Croatia will have a zero GDP growth rate in 2010 and its latest forecast is that the country's GDP will drop by one percent in real terms this year, it was said at a presentation of the latest World Bank Regular Economic Report for the EU10 (new EU member countries) plus Croatia.
Recovery in the EU10 region is fragile and uneven, and in Croatia it is still not visible, a senior regional World Bank economist, Sanja Madzarevic Sujster, said at the presentation.
The trend of weak domestic demand and falling investment has continued, and despite certain improvement in credit activity in the corporate sector, the financial sector has continued to guard itself against risks with increased interest rates.
The government's economic recovery programme must be implemented decisively, and the possible arrival of the IMF should not be viewed as a problem because an arrangement with the IMF would not be much different from the government's programme and it would send out a message about the stability of Croatia's public finances, said Madzarevic Sujster.
If the government remains consistent in the implementation of its programme, there will be no need for an arrangement with the IMF, she said, adding that delays in the implementation of necessary measures would only increase costs.
In the EU10 region, economic activity would return to the level it was at before the crisis only in 2011, and several countries, including Croatia, will need more time for that to happen.
The most successful EU10 countries, such as Slovakia, Poland, Hungary and the Czech Republic, are currently experiencing solid growth, while in Croatia the lack of optimism about recovery still prevails. If Croatia wants to ensure growth in 2011, it must implement structural reforms in public finances now and solve the problem of unsustainable primary deficit, which means that the government must put the public debt under control, Madzarevic Sujster said.
She particularly warned about a worsened situation on the labour market, which has seen an increase in the number of registered job seekers and a turn towards the grey economy.
Statistics on registered and surveyed employment suggest that in the first three months of this year the number of people working illegally rose to around 150,000, which is additionally affecting budgetary revenues and future pensions, she said.
The government has announced plans to cut the number of employees in the public sector by five percent, and trade unions are involved in that process. That is very important, because unions can considerably help in solving that problem with a constructive approach, said Madzarevic Sujster.
As for the reform of the pension system, Madzarevic Sujster said that reducing pension allowances was not a good solution and that measures making the system sustainable in the long run were important, such as prolonging working life, reducing the number of people going into early retirement, and reducing the number of privileged pensions.
