Croatia Country Report - February, 2016
The Croatian finance minister said he he expects the country’s economy to expand by around 2% this year, but warned about the negative risks stemming from the external environment, such as the slowdown in the Chinese and American economies, possible increase of interest rates in the United States and low oil prices.
Croatia’s economy expanded by a real 1.9% y/y in the fourth quarter of 2015, registering the fifth consecutive quarter of growth, and by 1.6% y/y in 2015 as a whole, following a 0.4% y/y contraction in 2014, the statistics office confirmed at the beginning of March.
However, an IMF mission, which visited the country in February, stressed the Adriatic country needs to quickly implement structural reforms to sustain growth.
The report also gives details about new investments in tourism, a key sector of the economy, and the government’s plans to build a new coal-fired unit at the existing Plomin thermal power plant.
It also provides details about the performance of the Croatian banking sector following the government’s decision to adopt legislation on the conversion of loans denominated in Swiss francs into euros, with the costs being borne by the banks.
Croatia's consumer prices fell 0.8% y/y in January, slightly narrowing from the 0.6% decline in the previous month. Croatia's industrial sales inched up 0.3% y/y in December, cooling from a 15.8% annual hike in the previous month.
The unemployment increased to 18.5% in January from 17.9% in the previous month. The average net monthly wage rose 1.6% in December, accelerating from a 4.9% hike in November.
Last year’s trade gap widened 1.3% y/y as exports rose at a faster pace than imports.
EXECUTIVE SUMMARY 5
MACROECONOMIC OVERVIEW 6
IMF calls for speedy implementation of structural reforms in Croatia 6
Croatia’s finance ministry expects 2% growth in 2016 6
REAL SECTOR 7
1. GDP, Inflation 7
Croatia's GDP growth confirmed at 1.6% y/y in 2015 7
Croatia's consumer prices fall 0.8% y/y in January 8
Croatia’s economic sentiment worsens in February 9
Decline in Croatian producer prices eases in January 9
Croatia's agricultural producer prices decline 0.4% y/y in 2015 10
2. Industry and Trade 10
Croatia's retail sales growth accelerates to 4.8% y/y in December - detailed data 10
Croatia’s industrial sales growth slows in December 11
3. Labour Market 11
Croatia’s unemployment rate rises to 18.5% in January 11
Croatia’s average net monthly salary rises by real 1.6% y/y in December 12
4. Tourism 12
Tourist arrivals to Croatia rise 9.3% y/y in 2015 12
Two investors mull €200mn investments in Croatian tourism 13
Croatia's tourist sector to benefit as plans to film Star Wars in Dubrovnik confirmed 13
FISCAL SECTOR, MONETARY POLICY 14
Croatia sells €200mn worth of kuna, yields drop 14
Croatia targets budget deficit of 2.2% of GDP in 2016 15
Croatian central bank accepts all bids in weekly reverse repo auction 15
Croatia’s budget expenditure projected at €15.7bn in 2016, finance minister says 16
Croatia's 2015 central government deficit drops 41% y/y 16
Croatian central bank accepts all bids in first structural reverse repo auction 17
FINANCIAL INTERMEDIATION 18
Croatian Agency for Deposit Insurance and Bank Resolution sues Slovenian Cimos over €20.2mn debt from 1990s 18
Share of bad loans in Croatian banking sector declines to 16.56% at end-2015 19
Croatian banking sector posts €1.47bn pre-tax loss in 2015 20
Croatian insurers' premium income down 0.8% y/y in January 21
Erste bounces back with €968mn net profit for 2015 21
Value of new contracts signed by Croatia’s leasing firms up 1% in 2015 23
Veneto Banca seeks buyers for its subsidiaries in Romania, Moldova, Albania and Croatia 24
Croatian mandatory pension funds’ assets up 8% y/y in January 24
EXTERNAL SECTOR 25
Croatia's trade gap widens 1.3% y/y in 2015 25
Croatia’s gross foreign debt falls 0.2% m/m in November 25
Croatian central bank's foreign reserves up 17% y/y to €13.5bn at end-January 26
STRUCTURAL REFORMS 26
US strongly supports Croatia’s LNG import terminal project 26
New Croatian government may scrap plans for Plomin-C power plant 27
EIB provides €339mn financing for Croatia’s KRK LNG import terminal project 28
Reshuffle among Adriatic oil and gas explorers 29
Croatia has made limited progress in addressing EC’s recommendations, report shows 31
Croatia's INA cons net loss narrows 25% in 2015 32
Central European dealmaking withstands turbulence 33
CEE most exposed to potential Schengen suspension suggests analysis 36
Honeymoon over for Croatia's new government 37
Western Balkans, Austria take tougher line on migration 39
Croatia to use army for border security 41
Direct economic consequences of Brexit likely to be minor in CEE
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