Country Report Croatia April 2009

Outlook for 2009-10

• The government now assumes that real GDP will fall by 2% in 2009. In its new budget, it assumes lower revenue and expenditure, although the budget deficit will be larger than previously targeted.
• In the wake of several gangland-style murders, there will be continuing domestic and external pressure on the government to combat organised crime and to enforce the rule of law.
• As much still needs to be done in accession negotiations, EU entry will not occur before 2011. There is a risk even to this date, because of uncertainty over the future of the EU's Lisbon treaty and the ongoing dispute with Slovenia.
• The Economist Intelligence Unit forecasts a 3.2% contraction in real GDP in 2009, owing to falling domestic demand and a weakening euro zone, which will hit Croatian exports and tourism. We forecast zero growth in 2010.
• The kuna will depreciate to an average of around HRK7.48:1 in 2009, before regaining some ground in 2010.
• We forecast that average annual inflation will decline to 2.6% in 2009 and to 2.5% in 2010.
• The current-account deficit is forecast to narrow to 6.1% of GDP in 2009, and to remain at that level in 2010.

Monthly review

• The EU presidency, currently held by the Czech Republic, postponed the next intergovernmental conference with Croatia, owing to the border dispute between Croatia and Slovenia.
• Tensions between unions and the government have increased because of the cancellation of the planned 6% increase in public-sector salaries.
• The revision to the 2009 budget assumes a larger drop in budget revenue than in expenditure, so that the budget deficit will be larger than planned.
• The European Investment Bank (EIB), the World Bank and the European Bank for Reconstruction and Development (EBRD) will provide Croatia with loans totalling approximately 750m (about US$1bn) in 2009.
• The Croatian economy came to a stand-still in the fourth quarter of 2008, when real GDP grew by just 0.2% relative to the fourth quarter of 2007.
• Industrial production fell by 12.4% year on year in February, after dropping by 14.2% in January.
• Despite the slowdown in the economy, average monthly inflation increased in February to 4.2% year on year, from 3.4% in January.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;60
NAICS Code: 22;52