ECONOMY

Croatian fourth-quarter GDP growth slows down on output

ZAGREB (Bloomberg) – Croatia’s economic growth slowed in the fourth quarter as industrial output and consumer spending waned. Gross domestic product (GDP) expanded an annual 3.7 percent, the slowest in six quarters, slower than the 4.8 percent median estimate by four economists in a Bloomberg survey, the statistical office said today on its website. The economy grew 5.1 percent in the third quarter, while growth was 5.6 percent for all of 2007. «In 2008, we expect GDP growth to slow to around 4.5 percent, primarily due to the usual slowdown in economic activity after elections (less spending and capital investment), combined with stronger inflation pressures and the expected slower economic growth in the eurozone countries,» Zrinka Zivkovic Matijevic, economist at Raiffeisenbank Austria d.d. Zagreb said in an e-mail. The slower expansion, combined with rising inflationary pressures and easing wage growth, may damp chances for boosting living standards in the country, whose purchasing power is 52 percent of the European Union average. «The larger-than-expected slowdown is probably due to slower growth in exports, which indicates that the current account deficit will widen,» said Goran Saravanja, the chief economist at Zagrebacka Banka, predicting this year’s growth at 4.3 percent. «The first quarter may see an increase on strong industrial output growth, but full-year growth will slow due to the situation on international markets and limiting the bank’s credit growth.» Household spending rose 5 percent in the last three months of 2007, compared with 6.2 percent in the previous quarter. Government spending rose 3.7 percent from 4.4 percent in the period, the office said. Investments increased 4 percent, compared with 5.7 percent in the third quarter, and exports grew 2.1 percent from 7.3 percent. «Real wages grew only slightly due to the rising inflation rate, which contributed to slower personal spending and slower economic growth than was expected earlier,» Danijel Nestic of the Zagreb Economic Institute said in an e-mail before the release. »We expect this year’s growth rate to stabilize at around 4.7 percent.» He forecast growth of 4 percent for the final quarter. Industrial output grew 1.4 percent in December, the slowest in 18 months and 3.1 percent in the fourth quarter, down from 4.5 percent in the third quarter, according to Bloomberg calculations. Retail sales fell 0.2 percent annually in December, after growing 3 percent in November and 4.6 percent in the month before. Consumer prices rose 5.8 percent in February, down from a record 6.2 percent in the month before, on rising prices of food on the international market. Average net and gross wages fell 0.1 percent in the last month of 2007, declining for the first time since at least December 2005 according to Bloomberg data. The central bank will report fourth-quarter current account deficit figures on March 31. The government and the International Monetary Fund forecast the gap to have increased to nearly 9 percent of GDP last year, from 7.6 percent in 2006, driven by the trade gap that amounted to 72.1 billion kuna ($15.7 billion), or 26.4 percent of GDP, in 2007. The central bank is limiting credit growth at banks to 12 percent per year.