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Croatia Country Risk Report Q1 2020

Croatia Country Risk Report Q1 2020

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 in 2019, according to our forecasts.

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 likely become feasible in the mid-2020s, although it may be delayed 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 eurorised 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.

Key Risks

The burdensome debt pile leaves the country highly exposed to shocks in financial markets or interest rate hikes that raise the cost of servicing debt, although hikes from the Croatian National Bank seem unlikely in the near future given the more dovish stance taken by the European Central Bank.


Executive Summary
Core Views
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Croatian Growth To Decelerate Amid External Weakness
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
Weak External Backdrop Accelerates Croatian Current Account Surplus Narrowing
Outlook On External Position
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: TOP FIVE GOODS EXPORTS IN 2017
TABLE: TOP FIVE GOODS IMPORTS IN 2017
Monetary Policy
Croatia's Euro Accession Within Reach
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Croatia's Public Finances Largely Compliant With Eurozone Criteria
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.Croatia Country Risk Q1 2020Contents10-Year Forecast
The Croatian Economy To 2028
No Meaningful Convergence Without Structural Reforms
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Croatia's Euro Ambitions Safer As ZZ Support Declines Rapidly
Long-Term Political Outlook
EU Anchor Supportive, But Risks Loom
Operational Risk
TABLE: OPERATIONAL RISK
Economic Openness
TABLE: TARIFF AND NON-TARIFF TRADE BARRIERS
TABLE: FREE TRADE AGREEMENTS
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
TABLE: BARRIERS TO FDI
Utilities Network
TABLE: ELECTRICITY RISKS
TABLE: FUEL RISKS
TABLE: TELECOMMUNICATIONS RISKS
TABLE: WATER RISKS
Global Macro Outlook
Manufacturing Weakness And Rising Political Risk To Weigh On Growth
TABLE: GLOBAL MACROECONOMIC FORECASTS (2018-2023)
TABLE: DEVELOPED MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: CROATIA – MACROECONOMIC DATA AND FORECASTS

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