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Croatia Country Risk Report 20 2018

Croatia Country Risk Report 20 2018

Croatia's short-term economic outlook has improved considerably as domestic demand has recovered faster than anticipated and robust growth has eased some of the country's macroeconomic imbalances.

Despite this, real GDP is only expected to regain pre-crisis levels by 2020.

Public debt remains high by both emerging and developed market standards, leaving the country vulnerable to shocks. While the public debt ratio peaked in 2015 and will continue to fall gradually, reforms to boost medium-term growth will be vital to ensure debt remains on a sustainable path once global interest rates begin to rise.

The Croatian National Bank will maintain its quasi euro peg, which we view as stable, and thus continue to track European Central Bank monetary policy.

The country's ambition to join the eurozone will remain elusive for the foreseeable future, in part due to rising euroscepticism within core countries which will lessen the willingness to absorb new members.

That said, Croatia is already a very euro-ised economy, with a large chunk of banking sector activity conducted in the common currency.

After a volatile 2017, we expect a return to relative political calm in the coming quarters, though caution that the government coalition remains vulnerable to internal divisions over sensitive reform issues.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Strong Domestic Demand Mitigating Weaker External Dynamics
GDP By Expenditure Outlook
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
TABLE: GDP GROWTH FORECASTS
External Trade And Investment Outlook
Current Account Surplus To Narrow As Import Bill Rises
Outlook On External Position
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: TOP 5 GOODS EXPORTS IN 2017
TABLE: TOP 5 GOODS IMPORTS IN 2017
Monetary Policy
Kuna Strength To Keep Inflation Well Anchored
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Slower Pace Of Austerity Ahead
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
Chapter 2: 10-Year Forecast
The Croatian Economy To 2027
No Meaningful Convergence Without Structural Reforms
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Agrokor Debt Crisis, Slovenia Border Dispute To Strain Political Stability
Long-Term Political Outlook
EU Anchor Supportive, But Risks Loom
Chapter 4: Operational Risk
Operational Risk
TABLE: OPERATIONAL RISK
Business Crime
TABLE: BUSINESS RESPONSE TO WHITE COLLAR CRIME AND ORGANISED CRIME RISKS
Education
TABLE: CROATIA AND OECD AVERAGE – PISA STUDENT PERFORMANCE SCORES
Chapter 5:BMI Global Macro Outlook
Trade Tensions Take Centre Stage
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: CROATIA – MACROECONOMIC DATA & FORECASTS

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