Country Report Croatia December 2008

Summary

The renewed mandate of the Croatian Democratic Union (HDZ) has contributed to a high degree of political continuity. However, the government will remain dependent on the support of smaller parties.
There are few significant policy differences between this government and its predecessor, but the assertive line taken by the Croatian Peasants' Party (HSS) on agriculture and territorial issues could hinder EU-related progress.
In the wake of several gangland-style murders, there will be continuing domestic and external pressure on the government to get to grips with the criminal underworld and enforce the rule of law.
The Economist Intelligence Unit expects the government to adhere to an agenda of EU-mandated reforms, although the pace of these will be slow in politically sensitive areas, such as agriculture, fishing and steel.
As a great deal of ground still needs to be covered in accession negotiations, EU entry will not occur before 2011, and there is some risk even to this date, chiefly because of uncertainty over the future of the EU's Lisbon treaty.
We forecast a slowdown in real GDP growth to an annual average of 2.5% in 2009-10, owing to reduced consumer spending and a weakening euro zone, which will have a negative impact on Croatia's exports and tourism earnings.
The current-account deficit should contract to an average of 8% of GDP in2009-10.

Diplomatic activity has intensified ahead of an intergovernmental conference to be held on December 19th, at which Croatia had hoped to open ten more chapters in the EU accession process.
The EU has not confirmed a deadline for completing accession negotiations, owing to the significant reform challenges that Croatia still faces, including a border dispute with Slovenia, and the EU impasse regarding enlargement.
A new Gallup poll revealed widespread pessimism in Croatia and a low level of support for joining the EU.
After failing to renegotiate with trade unions over wage increases for civil servants, the government now expects to run a budget deficit in 2009, although the budget is characterised by cuts in expenditure.
The Croatian National Bank (CNB, the central bank) has reduced the minimum reserve requirement from 17% to 14% to boost domestic liquidity.
With the demand outlook considerably worse than earlier in the year, industrial production declined in October. Inflation also moderated.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;49;20
NAICS Code: 52;22;311