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Croatia Country Report - May, 2016

EXECUTIVE SUMMARY

This report reviews key macroeconomic data and microeconomic developments for Croatia published between May 2 and May 31, 2016.
The European Commission cut its 2016 GDP growth forecast for Croatia to 1.8% in its latest Spring 2016 Economic Forecast from 2.1% in the Winter 2016 Economic Forecast, while it kept its 2017 GDP growth forecast constant at 2.1%.
The International Monetary Fund warned that domestic political conditions in Croatia remain challenging with possible adverse implications for reform implementation and the economic policy-making environment.
The report also provides details on EBRD’s latest growth forecasts for Croatia, and the European Commission’s warnings on budget deficit targets. It mentions latest developments in structural reforms. The report also reveals the latest investments in tourism sector, and the details on public borrowing.

Key Points:

GDP growth in Croatia accelerated to 2.7% y/y in Q1 from 1.9% y/y in the last quarter of 2015.

Croatia's consumer prices fell 1.8% y/y in April, deepening from a 1.7% annual decline the previous month.

Croatia's working-day adjusted retail sales rose by a real 3.5% y/y in March, accelerating from an annual increase of 1.4% in the previous month.
House prices in Croatia rose by 0.11% q/q on average in the last quarter of 2015, but declined by 2.13% y/y compared to Q4/2014


EXECUTIVE SUMMARY
MACROECONOMIC OVERVIEW
European Commission cuts 2016 GDP growth forecast for Croatia to 1.8%
IMF warns Croatia on importance of reform agenda
EBRD raises 2016 GDP growth forecast for Croatia to 1.5%
European Commission warns Croatian government on importance of budget deficit targets
REAL SECTOR
1. GDP, Inflation
Annual deflation in Croatia deepens to 1.8% in May
Croatian central bank expects 0.9% CPI inflation on average this year
Croatian GDP growth accelerates despite political uncertainties
Deflation in Croatian industrial producer prices deepens in March
2. Industry and Trade
Croatia’s Podrovka Group reports 0.4% y/y rise in Q1 consolidated net profit
Croatia's adjusted retail sales growth recovers to 3.5% y/y in March
Croatia’s Agrokor secures €350mn loan from Russia’s Sberbank
Albania, Montenegro, Bosnia and Croatia lobbying for IAP gas project
Croatia's building permits up 13.5% y/y in Q1
Croatia’s industrial output up 6.9% y/y in March
Croatian new passenger car registrations rise 18% y/y in January-May
Croatia’s Atlantic Grupa receives regulatory approval to issue €27mn bonds
3. Labour Market 33
Unemployment rate in Croatia declines further to 15.9% in April 33
Croatia’s average net monthly salary declines by nominal 1.24% m/m in March
4. Tourism 35
Tourist arrivals in Croatia rise 7.5% y/y in January-April
FISCAL SECTOR, MONETARY POLICY 36
Croatian central bank accepts all bids in weekly reverse repo auction 36
Croatia to auction €40mn worth of 364-day kuna T-bills on June 28 37
FINANCIAL INTERMEDIATION 39
EBRD considers providing €35mn loan to Croatia’s Raiffeisen Leasing to support SMEs 39
Croatian insurers' premium income down 1.18% y/y in January-May
Croatian mandatory pension funds’ assets up 1.28% m/m in May . 40
EXTERNAL SECTOR 42
Croatia's foreign trade gap widens 3% y/y in January-April
STRUCTURAL REFORMS 44
Slovenian GEN and Croatian HEP to extend lifespan of Krsko power plant to 2043 49
Croatian government bans rubber stamps 44
Croatian privatisation agency fails to sell 29.94% stake in Suncani Hvar in single package 45
Croatian government allocates €116mn for SMEs from EU funds 46
POLITICS 47
Croatian ruling coalition fails again to gather absolute majority for legislation at parliament 47
CEE support for EU-US trade deal is now falling like elsewhere in Europe 47
Croatia’s senior ruling HDZ proposes Finance Minister Maric for prime minister 51
Croatia, Iran discuss several energy, transport projects
YUGOSLAVIA 25 YEARS ON: Croatia’s old military bases to become

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