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Croatia Country Report - March, 2016

  • April 2016
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 56 pages

This report reviews key macroeconomic data and microeconomic developments for Croatia published between March 6 and March 31, 2016.

Moody's has downgraded Croatia's long-term issuer and senior unsecured debt ratings to Ba2 from Ba1 and maintained the negative outlook due to large and increasing government debt burden, and weak medium-term growth prospects. Now, all three rating agencies, including Moody's, Fitch and S&P, rate Croatia at two notches below the investment grade with negative outlooks.

The Zagreb Institute of Economics (ZEI) slightly revised its forecast for real GDP growth in 2016 to 1.5% in its latest quarterly economic outlook from a previous 1.3%, based on newly released data for 2015. ZEI forecasts 1.8% GDP growth in 2017.

The report also provides details on economic sentiment indicators, and construction output. It mentions latest developments in bilateral relations between Croatia and Slovenia. The report also reveals the latest investments in tourism sector, and the details on public borrowing.



Key Points:



o Croatia is targeting this year a budget deficit of HRK7.5bn equivalent to 2.2% of GDP and a general budget deficit of HRK9.2bn equivalent to 2.7% of GDP when state agencies and municipal authorities are taken into account. The finance ministry expects the economy to expand by 2% this year. Consumer prices inflation is seen at 0.1% and the government also plans to reduce the jobless rate below 16% this year.



o Croatia's consumer prices fell 1.4% y/y in February, deepening from a 0.8% annual decline the previous month.



o Croatia's registered unemployment rate stood at 17.8% in February, 0.1pp down compared to January and 1.8pp down compared to February 2015.

o Croatia's trade deficit widened by 9% y/y to HRK52.2bn in January from HRK3.17bn a year ago, as exports declined despite an increase in imports.

Table Of Contents

Croatia Country Report - March, 2016
EXECUTIVE SUMMARY5

MACROECONOMIC OVERVIEW6

Moody's downgrades Croatia to Ba2, maintains negative outlook6

Zagreb Institute of Economics revises upwards 2016 growth forecast for Croatia to 1.5% 8

Croatia's economic sentiment remains flat in March ................................................................................................. 9

CEE sentiment improves in March10

REAL SECTOR10

1. GDP, Inflation10

Croatia's consumer prices continue decline in February11

2. Industry and Trade12

Croatia's construction works index down 2.2% y/y in December12

Croatia's industrial output up 9.3% y/y in January14

Prices of new homes in Croatia rise 1.6% y/y in 201514

Croatian new passenger car registrations rise 3.3% y/y in January-February ...................................................... 16

Croatia's gross electricity production falls 10% y/y in January ............................................................................... 16

Croatia's retail sales growth decelerates in January ................................................................................................. 16

Croatian government cuts natural gas price for households by 18% ..................................................................... 16

Croatia's adjusted industrial sales decline 7.2% y/y in January .............................................................................. 18

Croatia's new car sales rise 16.6% y/y in February20

3. Labour Market20

Calendar-adjusted labour costs in Croatia inch up 0.7% y/y in Q420

Croatia's average net monthly salary rises by nominal 1.6% y/y in January22

Unemployment rate in Croatia declines to 17.8% in February22

4. Tourism23

Tourist arrivals in Croatia rise 8.8% y/y in January ................................................................................................... 23

Slovenia's Istrabenz Turizem sells Grand Hotel Adriatic in Croatia's Opatija ....................................................... 24

Four Seasons to operate Dubai-based Arqaam's hotel in Croatia .......................................................................... 24

Turkey's Dogus Group to invest additional EUR100mn in Croatia26

FISCAL SECTOR, MONETARY POLICY26

Croatian central bank accepts all bids in weekly reverse repo auction26

Croatia sells EUR103mn worth of kuna bills, below target26

Croatia to borrow from both domestic and international markets in April, FinMin says27

Croatian budget sends 'clear message' to carry out reforms29

Croatia sells EUR77mn worth of 364-day kuna bills, below target .............................................................................. 32

Croatia issues EUR531mn worth of 10-year domestic bonds ...................................................................................... 34

Croatian parliament approves 2016 budget .............................................................................................................. 36

Croatian central bank accepts all bids in weekly reverse repo auction36

FINANCIAL INTERMEDIATION37

Croatian insurers' premium income down 3.11% y/y in January-February37

RBI books EUR77mn charge for mandatory CHF loan conversion in Croatia in 2015 37

Croatian mandatory pension funds' assets up 6% y/y in February 38

SEE Link regional bourse platform to be unveiled in Skopje on March 29 - EBRD 38

SEE Link platform linking Macedonian, Bulgarian and Croatian bourses becomes operational39

EXTERNAL SECTOR40

Croatia's trade gap widens 9% y/y in January40

STRUCTURAL REFORMS41

Slovenia's Impol aims to acquire Croatian aluminium producer TLM in 201641

Slovenia's Impol starts production at Croatia's TLM42

Croatia to change central bank law to improve monitoring43

Croatia's HEP launches tender to chose contractor for EL-TO Zagreb upgrade project43

China's Poly Technologies in talks over infrastructure projects in Croatia's Zadar43

INA-MOL drops plans to sue Bosnian Federation's govt over Energopetrol capital hike 44

POLITICS44

Croatian government proposes amendments on using army for border security44

Switzerland and EU extend free movement deal to include Croatian workers46

Slovenia starts repaying Yugoslav-era savers from Bosnia and Croatia46

EU leaders confirm closure of Western Balkans migrant route............................................................................... 46

Croatian FM proposes scrapping border arbitration with Slovenia ....................................................................... 49

Croatian and Slovenian FM's highlight good bilateral relations despite border dispute .................................... 49

Romania, Bulgaria and Croatia most corrupt countries in EU, study shows ......................................................... 51

Bosnia divided over Karadzic conviction .................................................................................................................... 51

Probe into MiG-21 deal with Ukraine triggers corruption scandal in Croatia ....................................................... 54

COMMENT: China and the Balkans - 'New Engine, New Power, New Platform'... and new graft .................... 54

Hungary and Croatia reportedly to reopen railway border crossings..................................................................... 56

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