Croatia Tourism Report Q2 2008

Tourism Overview The growth rate in foreign tourist arrivals rebounded in 2007, with a total of just over 9.3mn arrivals, up a strong 7.5% year-on-year (y-o-y). Domestic tourism recorded a similar growth rate, reflecting a slowdown compared with a year earlier (perhaps affected by a considerable number of major forest fires in mid-2007). A detailed breakdown of data is only available for the period January to November 2007.

The top two source markets recorded weak growth rates in this period, with German and Italian arrivals both up a lowly 1% y-o-y. However, growth in arrivals from Japan, Australia, the US and Central & Eastern Europe, was particularly strong. Over the same eleven month period, foreign vessels realised 625 cruises in Croatia, up nearly 11% compared with the corresponding period of 2006. Passenger numbers on these cruises increased an even stronger 16% y-o-y to around 693,000, with each passenger staying on average 1.5 days in the country.

Forecast Scenario Real GDP growth in Croatia has been surprising on the upside in 2007. Stellar growth of 7.0% in the first quarter tempered slightly to 6.6% in Q207, but still maintained the highest quarterly rate in more than four years. We have made a slight upward revision to our growth forecasts for 2007 and 2008, to 5.7% and 4.6% respectively. However, we believe the business cycle is very near its peak, and growth by 2009 should slow to 4.3%.

The tourist season in Croatia in 2007 was one of the best on record. After strong recovery in foreign tourist arrivals last year, BMI expects tourist arrival growth to slow in 2008 and 2009. The background economic scenario is that the global economic outlook has deteriorated significantly, led by extremely weak US data. Consequently, BMI has revised down growth forecasts for the eurozone economy (the main tourist source region for Croatia) to 1.6% in 2008 and 2.0% in 2009 from 2.3% and 2.1% respectively. In addition, we remain long-term bullish on the Croatian currency, the kuna, against the euro. Our medium-term target is HRK6.9000/EUR, but this will only be a gradual trend, making the country relatively more expensive for foreign visitors from the eurozone. Given that we foresee EU accession in 2011, a pick-up in the tourism sector in that year is also anticipated.

Hospitality The total number of tourist nights amounted to 56mn (domestic and foreign tourists) in 2007, up a relatively favourable 5.7% y-o-y and an improvement in the growth rate compared with the previous year.

The number of foreign tourist nights was up 5.4% y-o-y to some 49.6mn nights (around 89% of the total).

Disaggregated data, which are only available for first eleven months of 2007, slow that the average number of nights per foreign tourist arrival was 5.4 nights. In line with weak growth in arrivals, Germany showed a decline in nights of 1% y-o-y, while nights by Italian tourists were largely unchanged. Foreign tourist nights attributed to arrivals from Slovenia and the Czech Republic, however, were up a relatively strong 8% and 12% y-o-y respectively.

Air Passenger Traffic According to unofficial data, the main international airport in Croatia, Zagreb Airport, served near 2.0mn passengers in 2007, representing very strong growth of 15.3% y-o-y (reflecting a buoyant year for tourism). This follows growth rates of 10.2% and 11.4% y-o-y in 2005 and 2006 respectively. After modest growth of 3.4% y-o-y in passenger traffic in 2006, Dubrovnik Airport (which gives prime access to the Adriatic coastline) recorded rather disappointing growth of just 2% y-o-y last year, compared with the airport's target annual growth rate of 7.3%.