February 13 (SeeNews) - The European Commission (EC) said on Thursday it maintains its forecast for Croatia's economic growth in 2020 at 2.6%, while lowering its projection for 2021 to 2.3% from 2.4% predicted in November.
"Domestic demand should remain the main driver of growth in both years", the European Commission said in its Winter 2020 Economic Forecast report.
Household consumption growth is expected to inch down but remain supported by rising real disposable incomes as unemployment, already at record low levels, is expected to further decline.
The EC also expects investment growth to remain strong, mainly supported by the expanding volume of maturing EU funded projects from the 2014-2020 programming period.
"Export growth is set to moderate, in line with lower growth in Croatia’s main trading partners, trade uncertainties and the limited scope for further growth in the tourism sector. Import growth should be underpinned by still strong domestic demand but is expected to decline in both 2020 and 2021," the Commission said.
The EU's executive body also said that the Harmonised Index of Consumer Prices (HICP) has halved in 2019, due to negative inflation for unprocessed food prices, resulting from changes in the applicable VAT rate.
"With the VAT change effect dissipating, wage pressures in the labour market and strong domestic demand are expected to fuel a pick-up in inflation in both 2020 and 2021, despite the assumed decline in energy prices. Core inflation is thus expected to increase even more," it added.
The European Commission said that it expects inflation of 1.5% and 1.7% in Croatia in 2020 and 2021, respectively.
Looking back at 2019, the EC lifted its GDP growth estimate to 3%, from 2.9% predicted in November, as domestic demand strengthened, spurred by a pickup in investment and government consumption expenditure, while continued improvements in the labour market and low inflation underpinned private consumption.
"Even though exports rebounded sharply, their growth was outpaced by imports," the Commission noted.
The Commission expects economic growth in the euro area and in the EU at 1.2% and 1.4%, respectively, in both 2020 and 2021.