Country Forecast Croatia June 2018 Updater

Country Forecast Croatia June 2018 Updater

  • June 2018 •
  • Report ID: 1697235 •
  • Format: PDF


  • The coalition government, led by the conservative Croatian Democratic Union (HDZ), has the support of several members of parliament from the liberal Croatian People's Party (HNS). The coalition is shaky, but has a narrow majority in parliament. The opposition is too weak to offer a meaningful challenge.
  • Relations between Croatia and Bosnia and Hercegovina (BiH) will fluctuate between hostile and cool. However, The Economist Intelligence Unit does not expect relations to break down completely, nor does it expect a return to violent conflict.
  • Progress on structural reforms, particularly concerning healthcare and pensions, will remain slow.
  • Croatia's recent success in reducing the fiscal deficit and achieving a small surplus in 2017 has enabled it to exit the EU's excessive-deficit procedure. We expect the budget to return to a small deficit, well within the 3% of GDP ceiling, over the forecast period (2018-22).
  • The government should continue to be able to finance the fiscal deficit on international markets during the forecast period, although there are risks to this forecast owing to future monetary policy tightening in the US.
  • Public debt will decline to an average of about 73% of GDP in 2018-22-still a high level for an emerging market such as Croatia. Large financing needs leave the country vulnerable to a downturn in foreign investor sentiment.
  • After real GDP growth of 2.3% in 2015 (the first positive outturn since 2008), growth picked up to 2.8% in 2017, and we expect the economy to expand by an average of 2.7% per year in 2018-22.
  • Risks to this outlook are to the downside. Failure to pass structural reforms, a slowdown in Europe, a poor tourist season or a chaotic restructuring of Agrokor, Croatia's largest private company, would all hinder growth.
  • After three consecutive years of deflation, in 2017 the consumer price index rose by 1.1%. In 2018­22, when we forecast higher international oil prices, we expect inflation to average 1.6% per year.
  • We expect the kuna to appreciate gradually against the euro in 2018-22, owing to the healthy stock of reserves, loose euro zone monetary policy, and improved external and fiscal positions.






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