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Croatia Country Report - August, 2015

Croatia Country Report - August, 2015

This report reviews key macroeconomic data and microeconomic developments for Croatia published between August 5 and September 3, 2015.

Croatia’s economy expanded by 1.2% y/y in the second quarter of the year, beating all expectations. The market was expecting GDP growth of 0.7%. The Q2 expansion was supported both by domestic and foreign demand.

The government announced plans to convert loans denominated in Swiss francs into euro with part of the principal being written off and all the costs being borne by the bank. A number of foreign banks reacted saying the measure would breach EU legislation. Earlier data released by the central bank in August showed that the banking system's pretax profit fell to HRK1.48bn (€195.9mn) in the first six months of the year from HRK1.57bn a year before, while the share of bad loans rose to 17.3%.

The report provides details on the tender for the implementation of Kupari I tourism project, which has an estimated value of €100mn, and other measures planned by the Adriatic country to support the sector. It also contains information on the expected date general elections will be organised.

Key Points:

Croatia's consumer prices fell 0.4% y/y in July, after staying flat the previous month. The working-day adjusted industrial output rose 3.9%, speeding from 1.6% in June. The annual growth of the first six months of the year reached 1.8% y/y.
The unemployment rate fell to 15.9% in July from 16.1% in June. This was the fifth consecutive month of decrease. The average net monthly wage rose 4.5% in June, slowing from a 3.3% hike in May.
January-June trade gap narrowed 3.9% y/y as exports rose at a faster pace than imports.


EXECUTIVE SUMMARY
MACROECONOMIC OVERVIEW
S&P affirms rating on Croatian capital Zagreb at BB
REAL SECTOR
1. GDP, Inflation
Croatia’s GDP grows by real 1.2% y/y in second quarter beating expectations– flash estimate
Decline in Croatian producer prices deepens in July
Croatia's consumer prices fall 0.4% in July
2. Industry and Trade
Croatia's industrial output growth accelerates in July
Growth in Croatia’s industrial sales speeds in June
Croatia's retail sales growth accelerates in July
3. Labour Market
Croatia’s unemployment rate continues to fall in July
Croatia’s average net monthly salary rises by real 4.5% y/y in June
4. Tourism
Croatia plans to award €40.3mn in grants for tourism projects
Tourist arrivals to Croatia rise 4.1% y/y in June
FISCAL SECTOR, MONETARY POLICY
Croatian ruling SDP announces tax cuts ahead of general elections
Croatian government announces higher allowances ahead of general elections
Croatia's M4 money supply up 2.6% y/y to €36.8bn at end-July
Croatia sells €57.8mn worth of kuna T-bills, misses target
Croatia sees deficit at around 4% of GDP in 2015
FINANCIAL INTERMEDIATION
Croatia’s H1 banking sector pre-tax profit falls to €328.4mn
Share of bad loans in Croatian banking sector up to 17.3% in H1
Croatia reportedly planning Swiss franc loans conversion into euro
Croatia’s plans to convert Swiss franc loans into euro breach EU law, foreign bank claim
Zagreb bourse’s turnover falls 1.9% m/m in August, indices plunge
Fitch lowers outlook on Croatia’s biggest bank ZABA
Croatian mandatory pension funds’ assets up 17% y/y in July
Value of new contracts signed by Croatia’s leasing firms down 10.2% y/y in H1
Croat factoring companies H1 after-tax profit down 6% y/y
RBI on the long road to recovery
EXTERNAL SECTOR
Croatia's H1 trade gap narrows 3.9% y/y
Croatia’s gross foreign debt falls 0.9% m/m in May
STRUCTURAL REFORMS
Croatian railway firm awards contract for 12.2km railway track construction
Croatia extends deadline in tender for implementation of €100mn tourism project
Croatian government agrees Plinarco’s loan guarantee for gas storage upgrade
Hungary’s MOL reportedly pushing Croatia’s INA to withdraw from offshore exploration project
POLITICS
Croatia’s opposition HDZ Party keeps leading position with 31.5% backing - poll
Croatian general elections reportedly to be held by November 15
Croatia’s former president signs coalition agreement with Reformist leader ahead general elections

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