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Croatia Country Report - October, 2015

Croatia Country Report - October, 2015

EXECUTIVE SUMMARY

This report reviews key macroeconomic data and microeconomic developments for Croatia published between October 7 and November 6, 2015.
In the beginning of November, the European Commission raised its 2015 growth forecast for Croatia’s economy to 1.1% from 0.3% projected in May. The growth should be supported by increasing external demand and a halt in the domestic demand contraction. The 2016 outlook was also revised up to 1.4% from 1.2% projected in the spring forecast.
The World Bank is less optimistic for this year, expecting 0.9% growth. However, the new forecast represents an improvement compared to the 0.5% growth projection made in June. The EBRD also upgraded this year’s growth forecast for Croatia to 0.9% from the previously projected 0.5%.
The Croatian central bank is the most optimistic, expecting 1.2% economic expansion in 2015. In July, it was expecting only 0.5% growth.
The report also provides details on the latest developments in the tender for the development of a LNG terminal on the Croatian island of Krk and reveals the results of an opinion poll ahead the general elections scheduled for November 8.
It also mentions Croatia’s ranking in the latest Doing Business Report of the World Bank.

Key Points:

Croatia's consumer prices fell 0.8% y/y in September, after dropping 0.6% the previous month. The working-day adjusted industrial output rose 5.4%, speeding from 2.8% in August. The annual growth of the first nine months of the year reached 2.3% y/y.
The unemployment increased to 16.2% in September from 15.9% in the previous two months. The average net monthly wage rose 4.2% in August, slowing from a 3.8% hike in July.
January-August trade gap widened 0.5% y/y as exports rose at a faster pace than imports.
Government debt-to-GDP ratio fell to 85.7% in the second quarter of the year from 87.7% in the previous quarter


EXECUTIVE SUMMARY 5
MACROECONOMIC OVERVIEW 6
EC raises Croatia’s 2015 GDP growth forecast to 1.1% 6
EBRD raises to 0.9% Croatia’s GDP growth forecast for 2015 7
World Bank forecasts 0.9% growth in Croatia in 2015 7
REAL SECTOR 8
1. GDP, Inflation 8
Croatia’s central bank raises GDP growth outlook 8
Croatia’s economy to expand 0.3% in 2015 - Ernst&Young 8
Croatia's consumer prices fall 0.8% y/y in September 8
Croatia’s economic sentiment improves in October 9
2. Industry and Trade 10
Croatia's industrial output growth speeds up in September 10
Croatia's retail sales growth accelerates in September 10
Croatia’s construction works index down 0.5% y/y in August 11
Croatia’s industrial sales fall in August 11
3. Labour Market 11
Croatia’s unemployment rate rises to 16.2% in September 11
Croatia’s average net monthly salary rises by real 4.2% y/y in August 12
One in six unemployed Croatians finds jobs in second quarter - Eurostat 13
4. Tourism 13
Tourist arrivals to Croatia rise 11.8% y/y in September 13
FISCAL SECTOR, MONETARY POLICY 13
Croatia’s state debt falls to 85.7% of GDP in Q2 - Eurostat 13
Croatia sells €184mn worth of kuna, euro T-bills, beats target 14
Croatia's M4 money supply up 4.6% y/y to €37.9bn at end-September 14
Croatia’s 2014 budget deficit at 5.6% of GDP, gross debt at 85.1% of GDP – revised data 15
Croatian central bank slashes lombard, discount rates 15
Croatia's January-August central govt deficit drops 25% y/y 16
FINANCIAL INTERMEDIATION 16
Austria's Erste rides CEE recovery to swing to profit in Jan-Sep 16
Croatian central bank accepts all bids in weekly reverse repo auction 18
Croatian insurers' premium income rises 2.4% y/y in January-September 18
Intesa Sanpaolo turns to 9-mo net loss in Croatia 19
Zagreb bourse’s turnover rises 16% m/m in October 19
Slovenia calls for bank depositors from Bosnia and Croatia to verify claims dating to breakup of Yugoslavia 20
Croatian mandatory pension funds’ assets up 11.2% y/y in September 20
Croatian bank rehabilitation agency takes over management of Jadranska Banka 20
Croatian banks ask Constitutional Court to assess legality of Swiss franc loans conversion 21
EXTERNAL SECTOR 22
Croatia's trade gap widens to €4.8bn in January-August - revised data 22
Croatia’s gross foreign debt rises 0.9% m/m in July 22
Croatian c-bank foreign reserves up 11% y/y to €13.4bn 23
Croatia attracts €1bn in FDI so far this year 23
STRUCTURAL REFORMS 24
Croatia accepts Avenue Group bid for €100mn tourism project 24
Croatia drops one place in World Bank's 2016 Doing Business ranking 25
Croatia announces gas price cuts ahead of general elections 25
Slovakia’s J&T Group reportedly planning to take over Croatian conglomerate Adris Grupa 26
Croatia’s Podravka makes buyout offer for Slovenia’s Zito 27
Croatia’s LNG Hrvatska extends deadline for LNG terminal bidding 27
INA-MOL could replace Shell in Bosnian exploration project 28
POLITICS 29
Croatia’s main political parties neck-in-neck in general elections race 29
Croatia won’t rule out building fences to manage migrant flow 31
Hungary shuts border with Croatia 32

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