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Croatia Country Risk Report Q4 2018

Croatia Country Risk Report Q4 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 2019.

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.

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.


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 Economic Growth Outperformance To Continue
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
Narrowing Current Account Surplus Not A Concern
Outlook On External Position
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: TOP 5 GOODS EXPORTS IN 2017
TABLE: TOP 5 GOODS IMPORTS IN 2017
Monetary Policy
Moderate Inflation Uptick Ahead In Croatia
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Austerity And Debt In Croatia Load To Ease Gradually
Croatia Country Risk Q4 2018ContentsStructural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
10-Year Forecast
The Croatian Economy To 2027
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Russian Stake In Major Croatian Firm To Raise Tensions
Long-Term Political Outlook
EU Anchor Supportive, But Risks Loom
Global Macro Outlook
Pressure On EM Grows, As Do Divergences
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: CROATIA – MACROECONOMIC DATA & FORECASTS

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