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Croatia Business Forecast Report Q2 2010
Management Report
Published: February 2010
Pages: For full details, please email keithw@cmsinfo.com
Tables: For full details, please email keithw@cmsinfo.com
From: GBP 480.00 Buy Now!
Research from: Business Monitor International
Sector: Regional Markets
The Croatian economy contracted by 5.7% year-on-year (y-o-y) during Q309. This represents aslight improvement from the 6.3% y-o-y and 6.7% declines posted in Q2 and Q1, respectively. Whilethe main driver of the improved headline figure came from consumer spending, which accounts formore than 50% of GDP, we remain concerned over the rising unemployment rate which hit 16.1%in November. A falling real wage rate is likely to hold back any improvement in consumer demandgoing forward. However, we note that throughout 2009’s recession the external asymmetries builtinto the economy continued to unwind, with the current account deficit expected to have narrowedto 3.7% of GDP in 2009 from 6.6% in 2008. Going forward, we forecast a weak recovery beyond2010, with average growth of 1.6% expected over 2010-2014, down from 4.3% over the period2004-2008.
Although we view positively the provisional closing of two further EU Acquis chapters on December21, we still believe that Croatia will find it difficult to meet its self-imposed 2012 target for EUaccession. Indeed, we expect endemic public-sector corruption and outstanding issues relating tocompetition policy and the judiciary to require significant time to address. This leads us to believethat accession before 2013 is becoming increasingly unlikely.
Significant deleveraging in Croatia is also becoming increasingly unlikely as global credit conditionscontinue to improve. However, we expect the pace of accumulation in external debt to fall in 2010.We therefore forecast foreign debt as a percentage of GDP to fall to 86.2% in 2010, down from89.9% in 2009. Furthermore, going forward we see limited risks to the sustainability of Croatia’sexternal debt load owing to the favourable maturity profile. Indeed, short-term external debt inCroatia accounts for ‘only’ 11.9% of the total burden, with the corporate sector maintaining ashort-term stock of only 5.1%. Furthermore, we believe a stable exchange rate will further supportstability: the Croatian kuna has traded within a HRK7.0000-7.8500/EUR band since 1998, whichhas significantly mitigated exchange rate risk.
The Croatian Central Bank announced on December 16 that it will make it easier for commercialbanks to get access to short-term credit by widening the range of collateral instruments available tothem. Whereas previously banks were only able to offer treasury bills, sovereign bonds or centralbank liquidity bills as collateral in order to gain access to credit, new financial instruments will beintroduced soon. While the specifics on the new instruments have yet to be revealed, we believethe boost in liquidity for Croatia’s banks will help improve the availability of loans for businesses.
Significant deleveraging in Croatia is also becoming increasingly unlikely as global credit conditionscontinue to improve. However, we expect the pace of accumulation in external debt to fall in 2010.We therefore forecast foreign debt as a percentage of GDP to fall to 86.2% in 2010, down from89.9% in 2009. Furthermore, going forward we see limited risks to the sustainability of Croatia’sexternal debt load owing to the favourable maturity profile. Indeed, short-term external debt inCroatia accounts for ‘only’ 11.9% of the total burden, with the corporate sector maintaining ashort-term stock of only 5.1%. Furthermore, we believe a stable exchange rate will further supportstability: the Croatian kuna has traded within a HRK7.0000-7.8500/EUR band since 1998, whichhas significantly mitigated exchange rate risk.
The Croatian Central Bank announced on December 16 that it will make it easier for commercialbanks to get access to short-term credit by widening the range of collateral instruments available tothem. Whereas previously banks were only able to offer treasury bills, sovereign bonds or centralbank liquidity bills as collateral in order to gain access to credit, new financial instruments will beintroduced soon. While the specifics on the new instruments have yet to be revealed, we believethe boost in liquidity for Croatia’s banks will help improve the availability of loans for businesses.