Economic conditions continue to improve in Croatia, and we have raised our short-term forecasts to -.- in ---- and -.- in ----. Nonetheless, we maintain our broadly bearish outlook due to ongoing economic headwinds and increased political instability. ...A rise of -.- y-o-y in household expenditure and -.- y-o-y in gross fixed capital formation suggests a gradual return to confidence among consumers and businesses (see chart). While this has also prompted an up-tick in import growth � to -.- y-o-y in Q--- from -.- in Q--- � this was still matched by solid export growth (-.- ) on the back of improved condi- tions in key EU trading partners. The tourism industry also remains strong, with the Tourism Ministry estimating an - y-o-y rise in tourist arrivals in the first -- months of the years as the country benefits from instability in Greece and Turkey. ...The prospect of an unstable government coalition or fresh elections early in ---- is a key short-term risk for investors, and therefore a significant threat to our economic outlook.
...---- ----e ----f ----f ----f ----f ----f ----f ----f ----f ----f ----f Private final consumption, HRKbn ---.- ---.- ---.- ---.- ---.- ---.- ---.- ---.- ---.- ---.- ---.- ---.- Private final consumption, of GDP --.- --.- --.- --.- --.- --.- --.- --.- --.- --.- --.- --.- Private final consumption, real growth y-o-y --.- -.- -.- -.- -.- -.- -.- -.- -.- -.- -.- -.- e/f = BMI estimate/forecast. Source: BMI, Eurostat dynamics are unsustainable, with the budget deficit (about - of GDP) and public debt load (about -- of GDP) among the highest in the region. ...A low capacity utilisation ratio implies there will be a limited need for businesses to invest in new productive capacity anytime soon. The government s dire fiscal accounts, and the perception among voters that past administrations spent unwisely in the pre-crisis years, means government spending on infrastructure projects will remain weak in future. Net Exports: We expect net exports to comprise about --- of GDP over the next five years. ...Imports collapsed during the financial crisis, due to a severe reduction in domestic demand, in a sub-optimal rebalancing of the country s external accounts. We now expect improving demand from the country s main trading partners, as well as the robust tourism sector, to keep net exports positive contribution to growth intact.
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