Country Report Croatia November 2009

Outlook for 2010-11

• The centre-right government led by the Croatian Democratic Union (HDZ) faces serious challenges in 2010-11, not least in maintaining its direction after the surprise resignation of Ivo Sanader as prime minister in July.
• There will be continuing domestic and external pressure on the government to combat organised crime and corruption and to enforce the rule of law—these issues will take centre stage in EU accession negotiations.
• The Lisbon treaty now looks set to succeed, providing a boost to Croatian EU aspirations. However, much ground still needs to be covered in accession negotiations, and mid-2011 is the earliest likely date for EU membership.
• The Economist Intelligence Unit estimates a 5.4% contraction in real GDP in 2009. We forecast growth of just 0.5% in 2010 and 2.4% in 2011 as domestic demand and euro zone demand recover gradually from the economic crisis.
• The kuna is estimated to have depreciated to an average of HRK7.40:€1 in 2009, before an expected strengthening to HRK7.36:€1 in 2010-11.
• We forecast that average annual inflation will remain fairly stable in 2010-11, at an average of 2.5%.
• The current-account deficit is forecast to narrow to an average of just over 5% of GDP in 2010-11, after moderating to an estimated 6% of GDP in 2009.

Monthly review

• Much uncertainty still surrounds the upcoming presidential election, because a number of candidates have not confirmed if they will enter the contest.
• Popular support for the HDZ grew by 5 percentage points during the past month, to 28.4%, according to a poll in October.
• Despite the unsuccessful first round of the privatisation of six Croatian shipyards, the economy minister, Damir Polancec, remained positive about the prospects of the second tender.
• The Croatian National Bank (the central bank) made two interventions in the foreign-currency market in October to ward off excessive kuna appreciation.
• In September there was month-on-month consumer price deflation of 0.2%, bringing the year-on-year rate of inflation down to 1%.
• Retail sales in August recorded a slightly smaller year-on-year decline, of 13.4%, compared with 19.3% in May, 15.2% in June and 14.6% in July.
• Industrial production failed to improve on the performance in August, dropping by 9.6% year on year in September, compared with an 8.3% contraction in August.

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