Croatian growth forecast is set higher

ZAGREB (Reuters) – Croatia’s central bank will raise its estimate for the country’s economic growth this year to more than 6 percent, in line with the government’s latest projection, Deputy Governor Boris Vujcic said yesterday. «We see the growth accelerating for the fourth year in a row. For this year, we shall revise our forecast to somewhat more than 6 percent,» Vujcic said. But Vujcic, speaking at a conference to mark the second anniversary of the start of European Union accession talks, added the former Yugoslav republic must change the structure of its economy before joining the EU. «Our growth is mostly based on investments and domestic demand. Now it is time to focus on structural reforms while preserving macroeconomic stability and pursuing fiscal adjustment,» Vujcic, who is deputy chief negotiator with the EU, said. The central bank and government both originally forecast the economy would expand by 4.5-5 percent this year, similar to last year’s 4.8 percent. But the first two quarters beat all expectations with a growth of 6.6 percent. Croatia hopes to join the EU around 2010 and most of its macroeconomic indicators look good, but analysts have said its economy may face a post-accession shock unless it is overhauled. The economy, largely reliant on services and imports, still suffers from high subsidies to ailing industries and too strong a role of the state. «We need to start changing the structure of our economy and create growth based on foreign demand,» Vujcic said. Croatia runs huge trade and current account deficits, which are partly compensated through tourism receipts. Last year the trade deficit amounted to $11.1 billion. The current account gap was equivalent to 7.6 percent of gross domestic product (GDP) in 2006 and is expected to widen to above 8 percent of GDP in 2007. In a recent Reuters’ poll, local analysts forecast this year’s growth at 5.5 percent on average, expecting a slowdown in the second half of the year.