HR Macro Outlook Croatia: 2019 GDP outlook becoming more challenging
The economic outlook will become more challenging as we move into 2019, hence we are plotting modest growth declaration of 2.6% (vs. 2018e of 2.8%). Domestic demand looks set to remain on a fairly strong footing, with private consumption continuing to be backed by the labor market, consumer credit and tax framework, while investments should gain some traction amid, hopefully, increasing EU funds absorption. External demand is facing headwinds from the anticipated slowdown in key export markets and, courtesy of global growth uncertainties, remains the biggest downside risk for the 2019 GDP outlook.
The monetary policy outlook remains largely intact, as the inflation outlook suggests moderating headline inflation pressures and ongoing limited demand-side pressures. The steady FX outlook and gradual appreciation pressures additionally point to an ongoing lax monetary policy stance and high LCY liquidity that would continue to anchor MM rates close to record lows and support the long end of the curve, which is anticipated to come under some upward pressure owing to the DE yields trajectory. Although we are not ruling out some prudential measures aimed to curb the credit dynamics. 2019 should also bring the credit rating back to investment grade region (supported heavily by the anticipated sound fiscal stance) and hopefully some positive signals as far as eventual ERM II membership is concerned.