The first Q3 17 GDP estimate reported continuation of economic growth at a faster pace with real GDP rising by +3.3%yoy. (SA +0.9qoq and +3.2%yoy respectively). The positive contribution to GDP growth in came from domestic demand while the net-foreign demand was negative, confirming relatively high import dependence of Croatian economy.

In terms of individual GDP components, the positive contribution to GDP volume change came from household consumption, growing 3.7%yoy in real terms. Strong household consumption levels are not much of a surprise since high-frequency indicators reported solid retail trade growth, increasing optimism, improvements in consumer confidence, growth of employment, declining unemployment and an increase in disposable income. Government consumption increased by 2.3%yoy in real terms while GFCF growth slightly accelerated to 3.4%yoy in real terms. This may indicate that at least for the time being, the Agrokor financial crisis has had a limited impact on macroeconomic developments. We remain firm in our forecast that 2018 will be more challenging in this respect and more exposed to negative risks. On the other hand, positive trends related to the withdrawal of EU funds, steady recovery of the construction sector and continuous corporate capital investments supported the continuation of positive trends related to GFCF growth. The negative contribution of net-foreign demand was a result of higher real growth rate of imports (9.5%yoy) compared to the exports (5.7%yoy). On the other side the rising optimism in the European and regional markets paired with upwardly revised growth forecasts of Croatia’s main trading partners spurs expectations that Croatia’s exports of goods will maintain its healthy growth in the upcoming quarters.

Along with GDP figures, CBS published the industrial production data which also pointed to a continuation of favourable trends. Namely, October brought continuation of positive growth rates (+4.3% yoy and +2.7% mom). Till the end of this year we expect foreign and domestic demand to be supported with these positive trends. So 2017 could bring growth rate around 2.5%.

We expect positive trends to continue for both Industrial Production and GDP volumes. For the whole 2017 we project real GDP to remain at last year’s level supported by domestic demand, mainly household spending and exports of goods and services.