In the first half of 2019, economic growth gained strong momentum in Q1 (+3.9% y/y) but lost it in Q2 (+2.4% y/y). A key trigger for the deceleration was a marked slowdown in external demand, mainly from the Eurozone, which lowered real export growth to just +1.3% y/y from +4.6% in Q1. Another trigger was the weakening of consumer spending (+2.7% y/y in Q2, after +4.3% in Q1) as a result of feeble labor market and tight credit conditions. Meanwhile, capital formation was the main growth driver in H1 2019; yet, a slowdown in fixed investment growth (+8.2% y/y in Q2, after +11.5% in Q1) and a build-up of inventories in Q2 suggest that this momentum will gradually fade in the coming quarters. Overall, we expect the economic moderation in Croatia to continue in H2 2019 and in 2020 against the background of ongoing weak external demand, notably from Western Europe. The country’s annual real GDP is forecast to increase by +2.5% in 2019 and +2% in 2020.
