Despite economic recovery, EU faces hurdles

26 Dec '15

4 min read

The World Bank expects growth in the EU to reach 2 per cent in 2015 and 2.1 per cent in 2016. It projects that growth will strengthen from 1.8 per cent (y-o-y) in the first half of 2015, with Central Europe experiencing the highest growth, driven by the Czech Republic, Poland and Romania. Romania is expected to grow at 3.6 per cent in 2015, and 3.9 per cent in 2016, fueled by a surge in private consumption and supported by fiscal measures. Poland is projected to reach 3.5 per cent in 2015 and remain above this level over the medium term, as improved labor market conditions raise real disposable household incomes and consumption. Southern Europe's growth rates, at 1.4 per cent in 2015 and 1.6 per cent in 2016, are likely to be the slowest, but a significant improvement from less than 0.5 per cent in 2014.

In Croatia, economic activity is expected to increase by 1.5 per cent in 2015, with recovery continuing in 2016-17 at on average 1.9 per cent. The recovery is led by strengthening domestic demand, exports and investment while unemployment continues to gradually decline. However, external factors, like a slowdown in Croatia's main trading partners, the Fed's tightening monetary policy and a surge in emerging market risk premium, could undermine Croatia's fragile recovery, affecting exports and raising financing costs for an already high level of indebtedness of public sectors as well as other domestic sectors. On the domestic side, the prolonged formation of a new government, and the uncertain scope of fiscal consolidation measures for 2016 and 2017 could reduce investor confidence and thus hamper the growth outlook.

“To ensure macroeconomic stability and growth, addressing fiscal vulnerabilities as well as high inactivity and unemployment rates, and a commitment to implement long-lasting structural reforms remains crucial”, said Sanja Madžarevic Šujster, World Bank Senior Country Economist for Croatia. (SH)

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