2013-01-01 13:36:52 - Croatia Business Forecast Report Q1 2013 - a new country guide report on companiesandmarkets.com

We do not expect Slovenia to delay Croatia´s accession to the EU on the back of a Yugoslav era banking dispute. We hold to our forecast for Croatia to join the bloc in 2013, as we expect Croatia to make the necessary concessions to gain the Slovenian accession ratification.

Weak domestic demand as a result of low confidence, fiscal austerity measures and a weak labour market will put Croatia in a recession this year. Looking to 2013, accession to the EU and concurrent funds and an improved outlook for the global economy, which will boost Croatian exports, will see a return to growth at 1.0%.

We are tentatively positive towards Croatia´s fiscal position. While the majority of fiscal adjustment this year has

 

 

emanated from bumper revenues, further expenditure cuts will need to come in 2013. Given the government´s strong majority in parliament and the policy anchor provided by potential negative ratings actions by credit rating agencies, we expect the coalition to adhere to fiscal austerity measures.

Major Forecast Changes

We have revised down our forecast for real GDP growth in Croatia to -1.7% in 2012 from -1.5% previously. This comes on the heels of data released by the Croatian Bureau of Statistics showing that household demand has been hit even harder than we were expecting over the first half of 2012 by fiscal austerity measures, an extremely weak labour market and weak confidence stemming from ongoing sovereign debt turmoil in the eurozone.

We have revised our forecast for Croatia´s fiscal deficit to 3.6% of GDP in 2012 from 3.9% and to 2.9% of GDP in 2013 from 3.2%.

This is the result of strong revenue growth in the first half of 2012, our expectation that the coalition government will remain committed to austerity and our anticipation for a return to growth in 2013.

Risks To Outlook

A more pronounced slowdown in eurozone growth than we are currently forecasting would weigh considerably on Croatian growth.

The country is heavily reliant on the external market for growth, particularly while government expenditures are dragged down by fiscal austerity and as consumers struggle to bounce back from the global recession.

One upside risk to our fiscal and investment forecasts would be the government´s ability to find a buyer for the country´s beleaguered shipyards. While this target remains a key EU accession process chapter, a lack of interest has meant the government has yet to sell all the shipyards. In the event that the government finds a buyer, it would take a significant strain off public finances and could have the potential to increase investor interest in the country, thereby improving Croatia´s investment outlook.

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