Croatian economic growth accelerated to an annual 6 percent in the first three months of the year, the biggest increase since third quarter of 2002, on rising investment and imports, the state statistics office said. Growth exceeded the 5 percent median forecast by four analysts surveyed on June 28-29, as well as the government's official forecast of 5 percent.

The $38 billion economy grew 4.8 percent in the fourth quarter of 2005, and 4.3 in the whole of last year. Faster than expected growth in the Balkan country has boosted tax collection and allowed the government to narrow the budget deficit for 2006.

The government said yesterday its expected budget deficit for 2006 will be 3 percent of the GDP, down from the 3.3 percent forecast when the budget was made. "Private investments grew strongly, as we see loans to firms rose some 20 percent in the first three months," said Raiffeisenbank Austria d.d. Zagreb's macroeconomic analyst Hrvoje Dolenec.

"Construction companies were very active, there was a rise in housing loans as well as that in the tourist sector for building hotels and other projects," Dolenec said.

Construction grew 11.5 percent in the first quarter compared with the same period in 2005, followed by transport, storage and communications which increased 9.9 percent in the same period, the office reported. The economy grew 1.8 percent in the first quarter of 2005, the slowest since the last quarter of 2000, and accelerated to 5.2 percent and 5.1 percent in the second and third quarters respectively.

"Fast industrial production growth in the first quarter of the year, as well as a weak basis in economic growth in the first quarter of 2005, will contribute to continue a trend of economic recovery that began last spring," Hypo Alpe-Adria Bank's analyst Hrvoje Stojic said before the announcement. Industrial production, which makes up around 20 percent of the GDP, grew 6.4 percent in the first three months from a year ago.

Croatia began membership negotiations with the European Union in October and hopes to join the bloc by the end of the decade. The Adriatic state was warned by the EU in May to stem inflation, boost private investment and carefully manage its budget deficit and high external debt, which totalled 28.6 billion euros at the end of April. Reporter.gr