The national statistical office (DZS) will publish a report on Croatia's Gross Domestic Product next week and analysts agree it will show that the country's economy in Q2 has experienced a record decline due to the coronavirus crisis.

Six analysts interviewed by Hina expect the GDP decline to be around 13.9% on the year, with their estimates ranging from 12% to 17%. This will be the first time since mid-2014 GDP has decreased and at the highest rate since 2000, when the DZS started keeping record of these statistics.

So far the biggest GDP decline, of 8.8%, was reported in Q1 2009, at the start of the global financial crisis. The lockdown due to the coronavirus epidemic in Q2 caused a record drop in personal consumption, the most important component of GDP. DZS data show that retail trade in Q2 sank by around 13% compared to the same period of last year.

Statistics also show that commodity exports dropped by 13.5% while imports dropped by 22.8%, one of the interviewed analysts said. Industrial production went down as well, by 8.4% from Q2 2019.

All components of GDP saw a decline except for government spending, an analyst said. This year has seen a lack of the positive impact of tourism on the economy due to restrictions on movement in most countries.

In the first six months, there were 1.5 million tourist arrivals in commercial accommodation facilities and 5.2 million overnight stays, a 77% drop from the same period of last year. But while tourism is not of crucial importance for consumption and GDP trends in the first six months, it is crucial in Q3 because of the summer tourist season.

So far the tourist season has been much better than expected, but expectations were very modest, at 30% of last year’s tourist trade. It is a fact that tourist trade will be much lower than in the same period last year, therefore an economic decline in Q3 is expected, the more so as a further decline in commodity exports and imports is expected given the recession in Croatia’s most important trade partners, Italy and Germany.

Deep but short recession?

The economic decline in the second half of the year will be milder than in Q2 due to the relaxation of restrictions and normalisation of economic activity, however, a more significant decline is expected for the entire year than at the time of the financial crisis.

The six analysts estimate that economic activity in 2020 could go down by 10.5%, with their estimates ranging from 8.5% to 12.5%. In 2009, at the start of the financial crisis, the economy sank by what so far has been a record 7.4%.

The government, too, expects the economic decline to be deeper than in 2009, estimating that GDP will go down by 9.4%, while the Croatian National Bank expects a decline of 9.7%.

The European Commission predicts that Croatia’s economic activity will drop by 10.8% this year. While the economic decline this year will probably be deeper than during the global financial crisis, the recession is expected to be shorter. The recession caused by the global financial crisis lasted six years while this time the economy is expected to recover already in 2021.