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Moody's downgraded on Feb 1 Croatia's government bond rating to Ba1 from Baa3 on poor growth prospects and lack of fiscal flexibility. The action comes as another woe for the Croatian economy after in mid-December S&P lowered Croatia’s credit rating to junk over the scarce evidence of structural and fiscal reform. In January, the EBRD and the World Bank cut their GDP growth projections for this year to 0.8% from previous 1.2% and 1.5%, respectively.
Several weeks later the government, as largely expected, said it will soon revise its 2013 budget to bring it in line with its new worsened GDP growth forecast of just 0.7% for the year compared to previously expected 1.8%. The revision will strive to keep the planed fiscal gap unchanged at some 3% of GDP and as revenues shrink the government will also need to cut expenses if it wants to remain true to its deficit target. As a result, public wages might be cut 3%.
Consumer price inflation accelerated to 5.2% in January from 4.7% in December. Retail sales fell by a real 6.1% on the year in December after declining 5.7% the same pace a month earlier. Industrial production shrank 5.6% on the year in December after dropping 4.3% in November.
The jobless rate jumped to 21.1% in December from 20.4% in November and was above the 18.7% one registered in December 2011. Labour productivity went down 1.3% in 2012 after rising 2.9% in 2011. Average net wages fell by a real 5% y/y in November after shrinking 3.1% a month.
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