After 4 quarters of decline posed by Corona virus pandemic, Croatian GDP in Q2 as expected returned to positive territory showing an increase in real terms of 16.1% YoY. After evidencing strong increase in tourist arrivals in July and August, we expect a solid growth of GDP in 2021 which could possibly overshoot our June estimate of 5.8% YoY.
Q2 2021 was the period when long-awaited relaxation of pandemic measures finally began to take place while Q2 2020 was the period when full impact of lock-down on the economy was evidenced. In Q2 2021 Croatian economy expanded by 16.1% YoY on a comparison with the same quarter of previous year as tourist activity slowly began to support domestic consumer spending. Compared to the previous quarter Croatian economy decreased slightly (-0.2%).
The main contributor to GDP, final consumption, was up 14% YoY, which is not surprising as we are comparing it to 2Q 2020 when full lock-down was in place. But in the second quarter of this year only ”lock-down light” was effective in April and May while economy started to reopen at the end of May. Even though stronger tourist activity didn’t begin until 1 July, when travelling in Europe was enabled via Covid-free passport, domestic consumption in H1 was sufficient to bring final consumption expenditures at currents prices to 5% above levels evidenced in 1H 2019.
The largest part of final consumption (73%), household expenditure, surged by 18.4% YoY, while general government’s expenditure amounting to almost 1/3 of final consumption accelerated and grew by 4% YoY. In H1 investments increased 11.4% YoY as outlook for higher consumer spending and industrial production of economies became more certain and vaccination of citizens was well underway. Investments will be directed from EU instrument named Next generation EU, that is allocating to Croatia loans and grants in the amount equaling 18.5% of pre-Covid crises GDP. We expect the gross fixed capital formation to be positive in 2021 and 2022 driven by strong inflow of these funds. So it is fully in line with our estimates that investments in Q2 2021 sped up to 18.3% YoY from 4.6% YoY growth in Q1.
Strong rebound of merchandise trade in Q2 was evidenced, which is in line with our expectation for double digit goods and services exports growth in 2021. In Q2 40.9% YoY export growth was evidenced as acceleration of flow of people and goods across borders continued. So, the increase in exports of goods and services (40.9%) was driven by both the increase in export of goods (+35.2%), and increase in exports of services (+56.3%) as a result of solid pick-up in tourism movements. Merchandise imports in Q2 2021 also surged by 30.3% as crude oil prices increase (+ 22% YoY in USD terms) and durable goods sales picked-up. Despite increase in consumer consumption we do not see them to reach pre-pandemic times so quickly, so we expect imports goods and services to increase slower than exports.
Croatian GDP, Real Growth Rates (%, YoY)*
*Quarterly Gross Domestic Product, seasonally adjusted real growth rates
