Croatia Business Forecast Report Q2 2008

Publication Date	March 2008
Publisher	Business Monitor
Product Type	Report
Pages	54
ISBN Number	1745-0527
Product Code	BMI00749

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Summary

A New and Stable Government Is Inaugurated

The Good News for Prime Minister Ivo Sanader Is That It Looks as If He Has Put Together A Stable Coalition, Which Should Be Capable of Surviving through to The next Parliamentary Elections Scheduled for 2011. for The First Time, An Ethnic Serb Has Been Appointed Deputy Prime Minister, and The Cabinet Also Includes A Member of The Roma Community. This Will Be Positively Viewed by The Eu, Who Have Criticised The Country for Its Attitude towards Minority Rights. in Many Respects, The Home Affairs and Foreign Policy Agendas across The Political Spectrum Are Quite Closely Aligned.

All Parties Agree on The Need to Improve Public Administration Efficiency, Reform The Judiciary and Raise Living Standards. However, Economic Management Will Be One of The Major Stumbling Blocks for The New Government, and Attitudes towards Government Spending, Particularly State Support for Selected Industries, as Well as Agricultural Subsidies, Will No Doubt Cause Future Disagreement.

for A Country That Was War-Torn and Riven with Ethnic Conflict Less than Twenty Years Ago, Membership of International Security and Peacekeeping Organisations Is An Important Milestone. Un Security Council Membership Was Secured in October 2007 (A Two-Year Term Runs until 2010) and Will Provide The Basis for Broader Regional Stability. An April 2008 Goal Also Looks Achievable for Nato Membership, Although The Hunt of Wanted War Crime Suspects Will Be Crucial in Convincing Alliance Members That The Country Is Ready to Join.

The Newly Re-Elected Hdz Government Has An Impressive Record on Fiscal Reform. from Its First Term in 2003, The Deficit Has Successfully Been Reduced from A Massive 6.3% to A Projected 2.3% for 2007. Given This Fiscal Prudence to Date, Many Are Hopeful That Sanader's Much-Quoted Plans for A Balanced Budget by 2011 Can Also Be Achieved. Yet While Bmi Believes That Further Consolidation of The State Finances Is on The Cards, We Foresee A Number of Other Pressures, Notably The Growing Problems of Pensions and Healthcare, as Well as Slower Tax Revenues from Lower Growth Weighing on The Budget in The Latter Half of This Decade.

The Explosion in Consumer Spending since 2000 Has Been Responsible for A Sharp Rise in Banks' Fx Borrowing - Their Share of Total Foreign Debt Has Risen from 29.5% to 31.7% of Gdp between 2004 and 2006. Controlling This Rise Has Been Difficult for The Central Bank, since around 90% of The Domestic Banking Sector Is Foreign-Owned, and Banks Such as Unicredit Can Easily Borrow from Their Eurozone-Based Parents. The Central Bank Pledged in December 2007 to Keep Stringent Limits in Place throughout 2008. The Credit Expansion Limit for Commerical Banks Is Set at Just 1% A Month, and A 55% Deposit Requirement on All Foreign Borrowing Is Required.

Content

Executive Summary
- A New and Stable Government Is Inaugurated
Chapter 1: Political Outlook
- Swot Analysis
- BMI Political Risk Ratings
- Domestic Politics
- A Rockier Ride for Sanader
- The Formation of The New Croatian Government Is A Positive Development for Policy Continuity, but with A Smaller
- Parliamentary Majority, Prime Minister Ivo Sanader Will Have A Harder Job Now than on His First Appointment in 2003.
- Foreign Policy
- The Door to International Clubs Opens
- Croatia's Foreign Policy Is on An Ever-Narrowing Path towards Integration with Western European Organisations.
- Table: Croatian Cabinet & Other Key Posts
Chapter 2: Economic Outlook
- Swot Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Highest Growth This Decade for 2007
- Real Gdp Growth in Croatia This Year Will Be The Highest This Decade, at An Estimated 5.9%.
- Table: Economic Activity
- Fiscal Policy
- Casting Doubt on Government Budgetary Projections
- We Believe The Cost of Eu-Mandated Reforms, The Growing Problem of Pensions and Healthcare, and More
- Immediate Concerns over Inflation, Will Combine to Weigh on Croatian Public Finances in The Medium Term.
- Table: Fiscal Policy
- Monetary Policy
- Price Growth: A Growing Problem
- despite The Current Inflationary Pressures, with Price Growth Reaching 5.8% Y-O-Y in December, We Believe That
- Progressively Tight Monetary Policy Will Help Rein in Inflation to below 4% Y-O-Y by The End of 2008.
- Table: Monetary Policy
- External Debt
- The Problem with Multinationals
- Gross External Debt Rose to Us$47bn in November 2007, and We Have Upped Our Year-End Projection to Us$48.5bn.
- Table: Foreign Debt
Chapter 3: Special Report
- Looking beyond 2008
- Us: The Rebalancing Act
- Unwinding The Imbalances
- We Believe That A Substantial, Multi-Year Shift in The Us External Accounts Is under Way. A Weak Us Dollar and
- Subdued Domestic Consumption Should Lead to A Narrowing in The Us's Structural Current Account Deficit.
- China: What If We're All Wrong?
- Our Core Scenario for China
- We Are Retaining Our Positive Headline Growth Projections for China across The Forecast Period to 2012, with
- Our Expectations of The Continued Success of The Urbanisation Process and Export-Driven Growth Model
- Underpinning Our Assumptions.
- Japan: Immigration Key to Long-Term Growth
- Demographic Woes Portend Long-Term Decline
- Immigration Remains The Only Realistic Way That Japan Can Overcome Its Long-Term Economic Challenges. Chapter 4: Business Environment
- Swot Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook - Q2 2008
- Institutions
- Table: BMI Business and Operational Risk Ratings
- Table: BMI Legal Framework Ratings
- Infrastructure
- Market Outlook
- Table: Emerging Europe, Annual Fdi Inflows
- Table: BMI Trade Ratings
- Table: Top Export Destinations, Us$Mn
- Operational Risk
Chapter 5: Key Sectors
- Food & Drink
Executive Summary
- The Growth Rate of Mass Grocery Retail Sales Will Accelerate throughout The Forecast Period, with The
- Value Expected Almost to Double to Us$9.7bn by 2012, up from An Estimated Us$5.5bn in 2006.
- Table: Croatia Mass Grocery Retail, Value Sales by Format - Historical Data & Forecasts (Us$Bn)
- Oil & Gas
- Table: Oil & Gas - Historic Data & Forecasts