Croatia Country Risk Report Q2 2016
Core ViewsCroatia’s economy will improve over the coming quarters, but willcontinue falling further behind its EU counterparts over the long-term.
Modest real GDP growth rates are the best the country can hopefor in future.
The new governing coalition is built on shaky ground and will struggleto remain united in the face of major political and economicchallenges.
Debt sustainability remains the most evident risk to financial stability.
Without rapid reforms, we believe Croatia will require some form ofIMF aid package at some stage over the next few years.
Croatia’s internal devaluation has further to run, with a furtherdownturn in oil prices likely to increase disinflationary forces overthe coming months.
Major Forecast Changes
We have revised up our estimates for Croatian real GDP growthto 1.1% in 2015, from 0.6% previously, and to 1.2% in 2016 (from1.0%). This reflects better than expected growth figures for H115,as well as strong external demand from key export partners.
We have adjusted our estimate for the 2015 budget deficit to 4.6%,from 4.8%, due to improved revenue growth on better economicactivity. Our forecast for 2016 dropped from 4.5% to 4.2%.
The current account surplus for 2015 is now estimated to come inat 2.2% of GDP, up from our previous forecast of 1.0%, due largelyto a bumper tourist season.
- Executive Summary
- Core Views
- Major Forecast Changes
- Key Risks
- Chapter 1: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Index
- Economic Analysis
- Severe Risks Undermine Improved Growth Figures
- Economic conditions continue to improve in Croatia, and we have raised our short-term forecasts to 1.1% in 2015 and 1.2% in 2016.
- Nonetheless, we maintain our broadly bearish outlook due to ongoing economic headwinds and increased political instability.
- 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
- Tourist Sector Will Support Current Account Surpluses
- Croatia will continue to post current account surpluses over the coming years, supported by subdued import growth, a booming tourism
- sector, and accelerating exports to EU markets. Although the improved external position does not reflect better local competitiveness, it
- does leave Croatia more financially stable in what remains a testing economic climate.
- Outlook On External Position
- TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
- TABLE: TOP 5 GOODS EXPORTS IN 9M15
- TABLE: TOP 5 GOODS IMPORTS IN 9M15
- Fiscal And Debt Outlook
- Unsustainable Public Finances The Main Threat To Stability
- Although the budget deficit is falling, Croatia's public finances will remain the principal threat to economic stability in the coming years,
- with the new government struggling to bring state debt on to a more sustainable path.
- Structural Fiscal Position
- TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
- TABLE: FISCAL POLICY
- Monetary Policy
- Oil Slump Will Extend Period Of Low Inflation
- The low inflation environment is set to persist in Croatia, largely due to the impact of falling oil prices. The recovery in domestic demand
- will gradually generate new price pressures, although we expect these to remain minimal amid subdued wage growth.
- Monetary Policy Framework
- TABLE: MONETARY POLICY
- Chapter 2: 10-Year Forecast
- The Croatian Economy To 2025
- A Sluggish Recovery In The Years Ahead
- With EU membership achieved in July 2013 and some convergence gains still to be realised, we maintain a slightly better long-term
- view on the Croatian economy. We caution, however, that ongoing difficulties in the eurozone and structural economic inefficiencies
- present key risks to this outlook over the longer term.
- TABLE:: LONG-TERM MACROECONOMIC FORECASTS
- Chapter 3: Political Outlook
- SWOT Analysis
- BMI Political Risk Index
- Domestics Politics
- New Government Coalition Built On Shaky Ground
- After a long delay, we expect Croatia to form a new government in the very near future, marking an important step in the return to
- normality. However, we believe that the new coalition is built on shaky ground and will face immediate pressure given the country's
- political and economic challenges.
- TABLE: POLITICAL OVERVIEW
- Long-Term Political Outlook
- EU Anchor To Support A Maturing Democracy
- While we expect Croatia's Long-Term Political Risk profile to continue improving, we caution that further progress and reforms are
- needed for the country to realise its full potential. We highlight the key challenges that could threaten stability in Croatia over the next 10
- years, and outline three possible long-term scenarios for the country.
- Chapter 4: Operational Risk
- SWOT Analysis
- Operational Risk Index
- Operational Risk
- TABLE: OPERATIONAL RISK
- Trade Procedures And Governance
- TABLE: EMERGING EUROPE – TRADE PROCEDURES AND GOVERNANCE RISK
- TABLE: IMPORT AND EXPORT DOCUMENTS
- Vulnerability To Crime
- TABLE: TRADE PROCEDURES BREAKDOWN
- Chapter 5: BMI Global Macro Outlook
- Global Macro Outlook
- Unfinished Business In 2016
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
- TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
- TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
- TABLE: CROATIA – MACROECONOMIC DATA & FORECASTS