Country Report Croatia March 2009

Summary

The government is aiming for a balanced budget in 2009, while keeping expenditure high enough to support the economy during the economic crisis. It is important for the government to put forward a realistic plan quickly.
In the wake of several gangland-style murders, there will be continuing domestic and external pressure on the government to combat the criminal underworld and enforce the rule of law.
As much still needs to be done in accession negotiations, EU entry will not occur before 2011, and there is a risk to this date, because of uncertainty over the future of the EU's Lisbon treaty and the ongoing dispute with Slovenia.
We forecast that real GDP will contract by 1.8% in 2009, owing to falling domestic demand and a weakening euro zone, which will negatively affect Croatian exports and tourism earnings. We expect 1.4% growth in 2010.
We expect the kuna to depreciate to around HRK7.44:1 in 2009, before regaining some ground in 2010.
The current-account deficit is forecast to narrow to the equivalent of 6.5% of GDP in 2009 and 6.1% of GDP in 2010.

There has been little progress in the border dispute between Croatia andSlovenia.
In a sign that Croatia is stepping up its efforts against corruption and organised crime, Vladimir Zagorec, a former deputy defence minister, was found guilty of stealing US$5m of diamonds.
The government announced ten anti-recession policies, including a rebalancing of the budget, increased capital for the Croatian Bank for Reconstruction and Development, and support for tourism and real estate.
The Croatian National Bank (CNB, the central bank) continued to pursue its main policy objective of maintaining a stable exchange rate of the kuna to theeuro.
Industrial production fell by 14.1% year on year in January 2009, which is the largest fall in more than 15 years.
The unemployment rate worsened from 13.7% in December to 14.5% in January. The Croatian Employers Association warned the government that as many as 50,000 jobs could be lost in the industrial sector in 2009.
The trade deficit in January was 37% smaller year on year.

Source: Country Report

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