December 20, 2017 / 10:24 AM / a year ago

UPDATE 2-Croatia's economy will lose steam without reforms, warns central bank

(Changes dateline to Zagreb, adds governor quotes, details)

By Igor Ilic

ZAGREB, Dec 20 (Reuters) - Croatia’s economy is likely to grow more slowly in the coming year, its central bank said on Wednesday, adding that structural reforms were urgently needed to prevent the current recovery from losing steam.

The bank forecast growth of 2.9 percent in 2018, down from an expected 3.1 percent this year as personal consumption and exports of goods and services are scaled back.

In an end-of-year report, the central bank also predicted inflation would rise to 1.6 percent from 1.2 percent.

The impact of a crisis at Agrokor, the country’s largest retailer, would probably be offset next year by stronger revenues from tourism, which accounts for almost 20 percent of Croatian GDP.

Agrokor, the biggest employer in the Balkans with around 60,000 staff, was put into state-run administration in April and has until July to achieve a final deal with creditors to avoid bankruptcy.

Central bank governor Boris Vujcic said a low level of investments, notably in the private sector, remained a major problem for the economy.

“The (economy) ... cannot grow (faster) without structural reforms aimed at improving the business climate. If such reforms do not take place this cyclical growth will fizzle out,” Vujcic told reporters.

The bank has repeatedly warned the government that reforms including less red tape, a stabler regulatory framework, a workforce better adapted to market conditions and lower administrative costs were needed to boost Croatia’s growth prospects.

Vujcic said the central bank would continue its expansive monetary policy in 2018, including longer-term repo operations to boost credit conditions.

“However, liquidity is already very good so at the moment I wouldn’t expect overly strong interest among the banks for additional funds,” he said.

Reporting by Igor Ilic; editing by John Stonestreet

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