Fitch Reaffirms Croatian Credit Rating, More Optimistic Than Government

Fitch Reaffirms Croatian Credit Rating, More Optimistic Than Government

As Novac writes on the 6th of June, 2020, Fitch has reaffirmed the long-term Croatian credit rating of 'BBB-' with a stable outlook.

"The stable outlook reflects confidence in the government that medium-term fiscal stability will be maintained while short-term measures are taken for economic recovery in regard to the effects of the coronavirus epidemic, as well as the continuation of the gradual euro changeover process," Fitch said.

Fitch forecasts a decline in Croatia's GDP of 8.4 percent in 2020, which is more optimistic than the government's own estimate (which stood at a concerning 9.4 percent), primarily due to the major consequences of the ongoing coronavirus pandemic on tourism, Croatia's strongest economic branch. The new forecast is that Croatian tourism will fall by 70 percent (compared to 50 percent, as was previously assumed).

"Recent economic data points to a dramatic deterioration in economic activity (GDP fell 1.4 percent in the first quarter, while retail sales fell a record 22 percent in April and unemployment jumped to 9.4 percent). Sentiment indicators point to recovery in May, in line with mitigation of the previously stringent anti-epidemic measures put in place to try to slow down the coronavirus infection rate. Other risks will remain as they are in the short and medium term, including the extent and length of the pandemic, recovery in external demand, the potential impact of suspension measures and adverse demographics, Fitch explains.

As for Croatia's desire to join the Eurozone, Fitch writes that Croatia is close to completing the requirements for simultaneous entry into ERMII, a sort of proverbial waiting room countries enter into before adopting the euro as its official currently, as well as the Banking Union.

"In May, the government approved a law reducing non-tax and parafiscal costs, meeting all structural commitments agreed with their European partners. The ECB also conducted its comprehensive assessment and the results will be published in June. If the ECB's results are positive, Croatia is likely to seek entry into the ERMII/Banking Union in the third quarter of 2020,'' they state.

For more on the Croatian credit rating and economy, click here.