Market Report, "Croatia Infrastructure Report 2013", published
2013-01-01 05:53:14 - New Construction market report from Business Monitor International: "Croatia Infrastructure Report 2013"
BMI View: The outlook for the Croatian infrastructure sector continues to remain grim in the face of slackened economic growth both domestically and within the region. Although the government's pledge to inject EUR13bn into the country's infrastructure sector and Croatia's accession to the EU by 2013 clearly creates room for optimism, BMI leans on the cautious side.
The further downturn in
Croatia's economy has prompted a change in our forecasts for the first 6 months of the year. In 2012, Croatia's construction sector poised a further contraction of 5.4% year-on-year (y-oy) in real terms - its fourth consecutive year of decline - as businesses remained cautious about making new investments, and the government postponed existing projects. We now forecast a moderate recovery for 2013, with a construction real growth of 1.5% y-o-y. Our positive view for the construction sector is underpinned by the continued efforts of the current government to push forward market reforms in a bid to secure EU membership, which we have long-expected to happen in 2013. The main risk to our outlook is the potential for delayed EU membership. Should the country's reform momentum slow, or delays to progress occur because of expansion fatigue among existing EU members, Croatia's EU accession may be pushed beyond the 2013 target date. This will curb the extent and pace of integration and convergence with the EU, which in turn will weigh on the appeal of Croatia to foreign investors.
Full Report Details at
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Thereafter, we expect the market to return to positive territory, with growth averaging 3.05% y-o-y, between 2013 and 2017 taking construction value to US$4.0bn by 2017.
Contributions to the forecast include:
?? Following the European Union's approval to Croatia's accession to the EU in July 2011, we expect infrastructure activity to speed up, as the country now has access to funding in order to support such projects. The European Investment Bank (EIB) estimates that it has provided some EUR2.5bn in loans (including current loans) to Croatia since 2001, to help implement projects that will support its accession. Another EUR85mn was provided by the EIB in September 2011 alone to help support infrastructure projects in the country. ?? In February 2011, the government announced plans to invest over EUR13bn in the country's infrastructure sector. Energy projects are expected to receive the lion's share, worth EUR3.85bn, while transport projects are forecast to receive EUR4.27bn. ?? In March 2010, Croatia signed an agreement to join the Russian-led South Stream Pipeline project. Energy projects look set to dominate in the medium-term, as the government focuses on improving existing infrastructure and capitalising on the country's prime geographical location as a connector with Western Europe. ?? The renewable energy sector in Croatia is also attracting increasing attention from international developers, mostly owing to its aspirations to EU membership and the very limited role played by non-hydro renewables sources in its power mix. German leading utilities RWE and E.ON are reportedly considering investing in Croatia's power sector, with new projects focusing on gas-fuelled plants and new wind farms. ?? In September 2012 The European Investment Bank (EIB) agreed to provide a loan of EUR 100mn to the Croatian Bank for Reconstruction and Development (HBOR). According to EIB the funding is meant to enhance the infrastructure improvements in the environmental, health and education sectors of SMEs, mid-cap companies, municipalities and local authorities, in order to "help Croatia prepare well-designed projects facilitating the country's integration into the European Union." The Republic of Croatia will become an "EIB shareholder when it joins the European Union."
Despite the fact that the Croatian economy experienced two years of economic contraction, with real GDP declining by 6.9% in 2009 and 1.4% in 2010, and is set to post another full - year contraction of 1.7% in 2012, we nonetheless hold a positive view of the economy over the long term. Having notched up a comfortable average annual growth rate of 4.5% over 2001-2007 we expect the negative outturns in 2009 and 2010 to be followed by below-trend growth of 2.1% in 2012-2017. However, with the EU accession still on the cards and real convergence gains still to be made, we forecast an average growth rate of 2.7% over the course of 2017-2022 - somewhat above the rate we expect for the Eurozone.
Croatia's business environment remains a strong point for the country, placing it far ahead of Turkey, Hungary and Romania. Much of the boost to its score in the past came from the capital investment and government spending prior to the global financial crisis, and we certainly see more upside as recovery gathers pace.
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