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Positive macroeconomic trends confirmed

4.11.2016 14:30:00 | Autor/Izvor RBA analitičari, Croatia

This week brought some relevant figures for September, which confirmed positive macroeconomic trends in Q3. The favourable performance in retail and industrial production (+4.5% yoy and +1.9% yoy respectively) imply a positive impact on GDP, strongly driven by the record-high tourist season and encouraging trends in foreign demand. Therefore we expect the upcoming data for August will show a continuation of positive growth rates in goods exports, but the high parallel dependence on imports could result in the foreign trade deficit deepening in the first eight months compared to the same period last year. We also reckon that the negative PPI in October could decelerate to 2.6% yoy, partially as a result of the high base effect, said in CEE Weekly.

In the week ahead, tourism data for September is set to be released as well, so we expect the historical season (in terms of tourist nights and arrivals) will be confirmed. Towards the end of the year the positive trends are to continue, thus surely affecting personal disposable income. Supported by the deflationary environment as well, the positive spill-over effect on household consumption could spur GDP growth. Moreover, the same effect is expected to strengthen in the year ahead as the announced tax reform is aimed at decreasing the tax burden through many proposed tax redemptions and lower
rates within the system of income and profit tax.

Nevertheless, improved fiscal and macroeconomic conditions paired with the enhanced political environment could finally result in Croatia keeping its Ba2 credit rating at Moody’s, while the upgrade to a stable outlook will definitely depend on the agency’s assessment of whether the new government is willing and able to press ahead with reform implementation.

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