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Croatia Country Report - July , 2015

Croatia Country Report - July , 2015

This report reviews key macroeconomic data and microeconomic developments for Croatia published between July 6 and August 4, 2015.

Both Fitch and Standard and Poor’s lowered in July Croatia’s outlook to negative from stable. Fitch said it sees Croatia’s budget deficit expanding to 5.5% of GDP this year, compared to previously projected 4.5%. Standard and Poor’s warned that general government debt is expected to increase to over 90% of GDP in 2016.

Earlier in July, Croatia’s central bank raised this year’s forecast to 0.5% from 0.4%, adding that the GDP should expand by 0.9% in 2016. The growth will be supported by rising exports, while domestic demand will have a bigger contribution to the growth only next year.

The report provides details on the latest developments regarding the country’s plans to build a LNG terminal on the island of Krk and presents the decision of the consortium made up of U.S. Marathon Oil and Austria’s OMV not sign the license contract with Croatia for hydrocarbons exploration and exploitation in the Adriatic.

It also contains information on Croatia’s decision to withdraw from the border arbitration with Slovenia and the Constitutional Court’s decision to annul the final verdict in two corruption cases against former Prime Minister Ivo Sanader sentenced to prison for bribe taking and ordered a retrial.

Key Points:

Croatia's consumer prices stayed flat on the year in June, the same as in the previous month. The working-day adjusted industrial output rose 1.6%, slowing from 4.4% in May. The annual growth of the first six months of the year reached 1.4% y/y.
Croatia’s government debt-to-GDP ratio rose to 87.7% in the first quarter of the year from 85.1%
The unemployment rate fell to 16.1% in June from 17.1% in May. This was the fourth consecutive month of decrease. The average net monthly wage rose 3.3% in May, slowing from a 3.4% hike in April.
January-May trade gap narrowed 4.1% y/y as exports rose at a faster pace than imports.


EXECUTIVE SUMMARY 4
MACROECONOMIC OVERVIEW 5
Fitch lowers Croatia’s outlook to negative 5
S&P cuts Croatia's outlook to negative on debt 5
REAL SECTOR 6
1. GDP, Inflation 6
Croatia's consumer prices flat in June 6
Croatia’s central bank revises up 2015 growth forecast to 0.5% 7
Decline in Croatian producer prices eases in June 7
2. Industry and Trade 8
Croatia's industrial output growth slows in June 8
Growth in Croatia’s industrial sales slows in May 8
Croatia's retail sales growth slows in June 9
Croatia’s agricultural production falls 7.7% in 2014 9
3. Labour Market 10
Croatia’s unemployment rate continues to fall in June 10
Croatia’s average net monthly salary rises by real 3.3% y/y in May 10
4. Tourism 11
Croatia’s tourism revenues rise 13.8% to €339.7mn in first quarter 11
Tourist arrivals to Croatia rise 14.8% y/y in May 11
FISCAL SECTOR, MONETARY POLICY 11
Croatia sees deficit cut to 2.4% of GDP by 2018 11
Croatian c-bank foreign reserves up 11% y/y to €13.7bn at end-June 12
Croatia's M4 money supply up 4.8% y/y to €36.3bn at end-June 12
Croatia places €792.6mn worth of 10-year T-bonds on domestic market 13
Croatia’s state debt rises to 87.7% of GDP in first quarter, reports Eurostat 13
FINANCIAL INTERMEDIATION 14
Advent, EBRD complete acquisition of Hypo’s Balkans operations 14
Zagreb bourse’s turnover rises 67% m/m in July 15
Zagreb Stock Exchange to take over Ljubljana Stock Exchange 15
Croatian insurers' premium income rises 3.7% y/y in January-June 16
Croatia’s Zagrebacka Banka increases stake in Bosnia’s UniCredit Bank Mostar 17
Net assets of Croatian open-end investment funds rise 2% m/m in June 17
Croatian mandatory pension funds’ assets up 16% y/y in June 17
Net profit of Croatian lender HPB jumps in January-June 18
Croatian parliament approves cut in default interest rates 18
EXTERNAL SECTOR 19
Croatia's trade gap narrows 4.1% y/y in January-May 19
Croatia’s gross foreign debt rises 1.1% m/m in April 19
STRUCTURAL REFORMS 20
VTTI, Croatian gas distributor PPD to jointly invest in storage terminal 20
UK Dechra Pharmaceuticals bids €51.4mn for Croatian drug maker Genera 21
Croatia launches binding bid phase for capacity allocation on planned LNG terminal 21
Marathon Oil and Austria’s OMV withdraw from offshore oil/gas exploration in Croatia 22
Poland's OT Logistics seeking Croatian hub at bottom of North-South corridor 24
LNG Hrvatska seeks investor for LNG terminal 24
World Bank to provide €20mn loan to Croatia for venture capital project 25
POLITICS 25
Croatian MPs vote in favour of quitting border arbitration with Slovenia 25
Croatia’s Constitutional Court annuls verdict in corruption cases against ex-PM 26
Croatia’s opposition HDZ Party keeps leading position with 29.5% backing - poll 28

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