The European Commission has confirmed the IMF estimate that Croatia will plunge into a fourth year of recession in 2013. Moreover, the Commission sees the country’s economy shrinking 1% this year versus only 0.2% contraction projected by the IMF. The EBRD has also worsened its forecast for the Croatian GDP, seeing it down 0.3% compared to a previously expected rise of 0.8%.

The negative estimates come in the eve of Croatia joining the EU on July 1, which indicates the membership will not have an immediate miracle impact on the domestic economy – though all current forecasts hint the GDP will return to the positive area already in 2014.

After selling a USD 1.5bn Eurobond with a 5.5% coupon in March, the government has said it plans to issue domestic debt worth EUR 900mn in early July and take a EUR 668mn loan in the last quarter of the year in order to plug fiscal gap.

The budget deficit already reached 65% of the annual plan at end-April and will most likely miss the government’s target of 3% of GDP for 2013. Still, although the government already revised once its budget plan for the year, it still expects an economic growth of 0.7% (down from initially projected 1.8%) – and considering the GDP drop expectations of the international lenders, another budget revision might take place further in the year.

Consumer price inflation slowed down to 3.3% in April from 3.9% a month earlier, reaching its lowest level in the past twelve months. Retail sales fell by a real 2.1% on the year in March after declining 3.3% a month earlier as domestic demand weakens amid decreasing real wages and climbing unemployment. Industrial production rose 4.1% on the year in March after dropping by the same percentage in February. The first-quarter production thus registered a small gain of 1.1% year on year.

IntelliNews calculations show the end-April unemployment rate stood at nearly 21%, up 1.8pps on the year. Moreover, the average net wages fell by a real 3.2% year on year in February, adding to the 3.8% drop from a month earlier. Labour productivity, however, went up 6.9% in the first three month of 2013 after dropping 1.3% in 2012.