Croatia sees no 2014 growth under new deficit cutting plan

(ZAGREB) - The EU's newest member Croatia on Thursday announced new measures to bring its deficit target in line with Brussels demands but warned they could hamper already anaemic economic growth.

Finance Minister Slavko Linic said the new measures, including higher taxes on petrol and telecoms, should cut the country's budget deficit by 0.4 percentage points to 4.1 percent of gross domestic product (GDP).

But he warned that they could stifle growth, adding that Zagreb now expects the country's economy to stagnate again this year after cutting its previous 0.2 percent forecast.

"The overall impact (of the measures) should not affect consumption by households and firms ... but could have a significant impact on the economy and gross domestic product," Linic told a cabinet session.

"We reduced our projections of economic growth from 0.2 to 0 percent ... we expect stagnation."

Croatia, which joined the European Union last July, has been in recession for the past five years, hobbled by high unemployment and a bloated public payroll.

The former Yugoslav republic's centre-left government is also struggling to meet rising borrowing costs for its huge debt burden.

Brussels has set Zagreb a deadline of April 24 to bring in new deficit reduction measures to meet EU targets or face further disciplinary measures.

"We've been spending too much for years and we have to borrow that money somewhere," Prime Minister Zoran Milanovic said.

"With these measures we will get harmonised with EU recommendations."

The 28-nation bloc launched proceedings in January against its newest member after its budget deficit of 5.4 percent of GDP exceeded EU limits.

The government's previous set of measures, adopted in March, aimed to reduce Croatia's budget deficit by one percentage point to 4.5 percent of GDP.

Brussels hopes the cuts will bring Croatia's budget deficit below the bloc's limit of 3.0 percent by the end of 2016.