Thursday, 7 May 2020

Croatian Economy: Top in Terms of GDP Decline, Next in Terms of Growth Rate

As Poslovni Dnevnik/Jadranka Dozan writes on the 6th of May, 2020, as far as the Croatian economy is concerned, the European Commission (EC) predicts a GDP decline of 9.1 percent in 2020, but with a relatively quick start to recovery and 7.5 percent growth next year.

With the economic forecasts that come with the rolling around of spring, the European Commission recently presented the first official assessment of the consequences of the coronavirus pandemic on the European economy, and this year it is described as a "recession of historical proportions".

New forecasts compared to the winter forecasts of less than three months ago have clearly shown the extent of the economic shock caused by the coronavirus outbreak; As early as February the 13th, 2020, the EC's winter forecast for this year predicted a slowdown in European GDP growth to 1.2 percent, and in the spring, it turned into an expectation of a decline of 7.4 percent and then a recovery at a rate of 6.1 percent next year. year, which rests on assumptions that are nevertheless accompanied by numerous concerning uncertainties.

In the case of the Croatian economy, the European Commission's forecast for 2020 from mid-February has shifted from a 2.6 percent GDP growth forecast to a worrying 9.1 percent decline, but with a relatively quick start to economic recovery that should be reflected in growth of 7.5 percent in 2021, with domestic demand as the main driver of that growth.

The European Commission also predicts a higher rate of decline than that of Croatia this year in only three other Mediterranean countries - Greece (9.8 percent), and hard-hit Italy and Spain (9.4 percent). At the same time, next year, their predictions see the Croatian economy at the top in terms of growth in forecasts; when it comes to countries that the EC predicts will have better forecasts than Croatia in 2021, only Greece (7.9 percent) outdoes it. Compared to last week's projections, it turns out that the EC is somewhat more optimistic.

The Croatian Ministry of Finance's predictions of a slightly deeper decline this year (9.4 percent) and more moderate growth next year (6.1 percent) may still be explained by the Croatian Government's fresher and fuller insight into the state of the Croatian economy than that of the more distanced EC. And although these forecasts assume a gradual normalisation of life and work, the EC highlights the uncertainty factor of the duration of that desired and expected normalisation, as well as the very real risk of a potential second wave of the coronavirus epidemic.

Currently, the common denominator of the forecast for the Croatian economy remains the expectation of a relatively quick start to the recovery process. Whether it will take Croatia two, three or more years to reach last year's GDP level remains to be seen, but this time it is not expected that it will take a full decade, which is what the unfortunate situation looked like for the country after the devastating 2008 economic crisis.

Thus, in a review of Croatia's situation, EC analysts point out that the Croatian economy saw in the ''entrance'' of the coronavirus pandemic in a much better condition than it did with the 2008 crisis. This is especially true for macroeconomic and budgetary indicators. However, Zeljko Lovrincevic from the Zagreb Institute of Economics points out that at the same time, Croatia's demographic picture is far worse than it was back then, and the technological matrix has not changed significantly, which still makes the economy much more vulnerable.

Regarding the structure of the Croatian economy, the European Commission has emphasised Croatia's enormous level of reliance on tourism, which affects the depth of the expected decline this year, but also poses a risk in the case of longer travel restrictions.

"Due to the expected increased aversion to international travel of potential foreign tourists, tourism is not expected to recover to the level of 2019 in 2021," the forecasts say.

However, domestic demand should recover faster than exports do, as uncertainties about the outlook for global trade remain significant, and this year's export outlook is exacerbated by the recession(s) being experienced by Croatia's main foreign trade partners.

When it comes to household consumption, the Croatian Government's measures to (co)finance wages in the business sector should help preserve it. At the same time, projects financed from EU funds, as well as measures to support the liquidity of companies, should have a mitigating effect on the dynamics of investments, the European Commission pointed out.

The negative impact of the large decline in exports of goods and services on GDP should, in turn, be mitigated by the high import component of tourism exports.

"Unlike the Croatian Government's projections, in which the unemployment rate is falling very slowly according to today's values, the European Commission's projection instills optimism," commented Luka Burilovic, head of the Croatian Chamber of Commerce (HGK).

The Commission believes that the Croatian Government's measures to support wages and liquidity should mitigate the decline in employment, but despite this, employment will still fall sharply this year in sectors that are likely to experience disruptions for the longest time, such as the leisure, tourism and hospitality industry.

The unemployment rate, after last year's fall to a historic low (6.6 percent), could rise by about three and a half percentage points this year, according to the EC, to 10.2 percent, but the Commission expects it to fall again to 7.4 next year. Finally, the Commission has somewhat more favourable forecasts regarding the deficit. After three years of surplus, this year they see the general government deficit at 7.1 percent of GDP, and next year they calculate that it could be reduced to 2.2 percent.

The EC estimates that partial and complete write-offs of taxes and social security contributions for the hardest hit companies in the second quarter should reduce revenues by the projected 1.5% of GDP. They also calculate that, for example, subsidies for salaries in the private sector could cover more than half a million employees and cost almost 2 percent of GDP.

The decline in activity for the Croatian economy and the government measures to try to keep things afloat has resulted in a significant increase in financing needs, so the EC expects public debt to rise to 89 percent of GDP this year, with a decline to below 84 percent of GDP in 2021.

For more on the Croatian economy, follow our lifestyle page.

Monday, 9 March 2020

Italian Economic Situation Threat to Predicted Croatian GDP Growth

As Adriano Milovan/Novac writes on the 9th of March, 2020, the Italian economy is likely to enter into a recession according to a new rating by the rating agency Moody's. This is more than likely to hit Croatia negatively and affect the previously predicted Croatian GDP growth.

In their new report on the state of the world economy, Moody's experts warn that the current coronavirus epidemic will hit the entire global economy, at least in the first half of this year. When it comes to Italy, their new forecasts suggest that Italy's GDP could fall by 0.5 percent this year when compared to last year, and that's even when taking a more optimistic scenario into consideration, assuming the situation with coronavirus gets no worse.

However, should the coronavirus situation in Italy continue to escalate further, Italy's economy could contract by 0.7 percent this year, as new Moody's forecasts show, warning that the areas hardest hit by coronavirus in the country are in the most developed regions in northern Italy, where more than forty percent of Italy's entire economic activity takes place.

"The risks of a global recession have increased," said the Moody's analysts, who warned of the rapid spread of coronavirus worldwide.

Moody's analysts haven't directly addressed Croatia in the report. However, given the strong economic ties between Italy and Croatia, it is already clear that Croatia will also feel the effects of the Italian recession. Italy is one of the most important foreign trade partners to Croatia, and a huge number of tourists come from Italy.

For example, according to the latest available national statistics data, covering the first eleven months of last year, Croatian companies exported goods worth 14.6 billion kuna to Italy, accounting for almost 14 percent of total Croatian exports.

At the same time, imports from Italy amounted to around 23.9 billion kuna, meaning that problems for Italy naturally mean problems for Croatia and the previously predicted Croatian GDP growth. Not surprisingly, many economists fear that the threat of this new recession for Italy could quite easily spill over into the eastern Adriatic coast, especially if the situation with coronavirus doesn't calm down.

''Croatia and Italy have very developed trade links, entire sectors in Croatia depend on orders from Italy, and Croatia imports a lot from Italy. The slowdown in economic activity in our environment, and especially in Italy, has also led to a slowdown in economic activity in Croatia, and perhaps even a recession. In any case, it's already clear that the economic growth rates announced in this year will not materialise in our country,'' warned Damir Novotny, a respected economic analyst.

''What is already certain is that the planned growth rate of our economy - and we expected Croatian GDP growth of 2.5 percent this year - will not materialise. It's also clear that the preseason is also out of thr question. However, in the Croatian case the key is the peak of the tourist season, so if the situation with coronavirus soon calms down, the main season may not be affected. In any case, what will happen with our economy in April and May is crucial, since as early as May, it will be possible to assess what sort of main tourist season we can expect,'' says Zrinka Zivkovic Matijevic, a macroeconomist at Raiffeisen.

She added that it was too early to predict what would happen in the Croatian, European and world economy by the end of the year. Therefore, she and her team constantly monitor developments and develop various scenarios.

In Croatia and when it comes to Croatian GDP growth or the lack of it, the developments of the situation will depend largely on what happens in nearby Italy, but also here on home terrain, since we have already "imported" coronavirus from Italy, with which, however, the Croatian authorities have so far been far more successful in fighting than their Italian counterparts.

Nonetheless, the coronavirus epidemic is already taking a toll in certain sectors of the Croatian economy and will continue to have negative effects on Croatian GDP growth, with the sectors most threatened being the wood industry, transport and trade, and of course, Croatia's strongest economic branch - tourism.

Clearly, the extent to which these sectors, and the Croatian economy as a whole, will suffer is yet to be seen given that the coronavirus epidemic is still ongoing and difficult to predict. This may depend on the final assessment of whether we will ''import'' a recession from Italy or, in a milder case, economic stagnation.

While macroeconomists warn that the situation is not yet critical, although it remains very serious, Croatian companies are already adding up the damage they have suffered so far as a result of the coronavirus epidemic.

''We're closely monitoring the developments in Italy. We hope it will leave at least some [free] corridor, at least for some products,'' says Petar Simic, owner and director of Primaco, a freight forwarding company.

He adds that Primaco has already introduced maximum driver protection measures, such as the obligation to wear masks and gloves, frequent disinfection, and stopping only in certain places along the road. They have introduced similar measures for those who transport goods to Italy and to other countries, as well as for those in Croatia.

''Still, quarantine for sixteen million people in the Italian north is a new challenge and it is yet to be seen how traffic with Italy will continue,'' Simic says.

For more on Croatian GDP growth and the negative effects the current coronavirus epidemic is set to have on it, follow our dedicated business page.

Sunday, 3 November 2019

Could 5G Network Introduction Significantly Influence Croatia's GDP?

As Novac/Gojko Drljaca writes on the 2nd of November, 2019, the Republic of Croatia is in a critical period in which the country and companies in the IT sector should recognise the potential for developing 5G network infrastructure.

It is a mistake to view 5G infrastructure as another step in the development of mobile telephony that will allow for faster and more comfortable use of the Internet or, in turn, watching higher quality videos. 5G is so much more than that.

Most of the special reports prepared by analytics and consulting firms for policy makers of both countries and major corporations conclude that the introduction of 5G will accelerate global economic growth very significantly in assessing the impact of 5G networks.

The big question is whether or not we're even actually aware here in Croatia that now is the right time to jump on the 5G train and accelerate the development of Croatia's 5G infrastructure. More and more governments across the globe are beginning to make decisions based on expert materials that tell them 5G is one of the cornerstones of future growth.

Far, far away in Australia, for example, they are convinced that 5G alone will raise their GDP per capita by 1300 dollars to 2000 dollars in the very first decade of its implementation. Imagine how much of a jump Croatia's general well-being would take if such a thing happened here.

5G provides data traffic speeds equal to those provided by fiber optic cables today. It is said that the Slavonian city of Osijek will, for example, be the first Croatian 5G city. Improving the speed of cable-free communication is in itself a major leap forward, which, according to experts, should be used primarily by inventive Croatian IT companies, of which there are many.

It can be believed that this is possible because the statistical indicators of the Croatian IT industry are very robust, although the state has not paid much attention to them at all, which isn't much of a surprise.

Between 2008 and 2018, the number of IT employees grew by 45 percent (from 26,970 to 39,062), exports grew by 90 percent (from 4.4 billion to 8.8 billion) and revenues grew by 28.8 percent (from 29.9 billion to 38.3 billion). It should be borne in mind that the domestic IT industry has, over the same period, driven a whole host of traditional industries forward.

The IT industry has grown much faster than the pharmaceutical and metal industries, electrical equipment manufacturing, machinery and equipment manufacturing, and even furniture manufacturing.

Even the food industry could not follow it in terms of total growth. The IT industry has slowly and dramatically changed the relations of the sectoral forces in Croatia, even when it comes to exports: in the same observed period, only the metal industry outperformed the aforementioned sectors.

In terms of total revenues from the observed industries, nobody is ''bigger'' or more important than the IT industry, and in terms of the number of employees, it is increasingly approaching the level of the food industry. On top of that, it has quite rapidly overtaken everyone else.

The key question now is how much additional momentum can be gained by Croatia's IT industry thanks to the rapid development of 5G infrastructure, or will it simply miss that train, as it has so many others? Time will tell.

Make sure to follow our dedicated politics and business page for much more.

Tuesday, 5 February 2019

Croatia's Foreign Debt is Lowest in Last Eleven Years

The trend of the Republic of Croatia's foreign debt falling on an annual basis has been going on since the end of 2015, according to RBA analysts in light of their review of the recently published data of the Croatian National Bank (CNB/HNB).

As Poslovni Dnevnik writes on the 5th of February, 2019, at the end of October last year, Croatia's gross foreign debt amounted to 38.4 billion euro, which is less by as much as 4.1 percent when compared to one year before, meaning that the country's foreign debt fell to its lowest level since back in September 2008, according to a new analysis carried out by Raiffeisenbank Austria (RBA).

RBA pointed out, in addition to the fact that the falling of Croatia's foreign debt has been a trend since 2015, that the fall of this debt in October in particular is the result of a decline in the debt(s) of other financial institutions, which fell by 13.1 percent, as it also did in other similar sectors.

Thus, the gross foreign debt of other Croatian (domestic) sectors dropped to 13.5 billion euro at the end of October, or by 5.3 percent year-on-year, continuing the trend of depreciation dating from January 2016, as was stated on Tuesday.

The gross foreign debt of the state amounted to 13.7 billion euro at the end of October, which was 0.4 percent less than it was one year earlier. The growth of Croatia's gross foreign debt at an annual level was recorded only in direct investments, by 4.4 percent, to 6.3 billion euro.

"We expect the data for the last two months of 2018 to point to the continuation of similar developments, and at the end of 2018, the relative indicator of external borrowing should be below 75 percent of GDP," RBA analysts point out.

They expect that this year's debt to gross domestic product (GDP) will decline, thanks to the growth of the domestic economy and further diversification of all of Croatia's key sectors. "Further reductions in debt in the corporate sector are expected as a result of the discrepancies in the cost of financing on domestic and foreign financial markets," analysts from RBA have stated.

However, a tightening monetary policy and worsening funding conditions in regional and global financial markets could warn of a potentially negative impact.

"[This is particularly concerning] in the case of Croatia's modest progress in the implementation of structural reforms, which leads to an increase in risk perception and, consequently, the risk premium of the country itself," concluded RBA's financial analysts.

Make sure to follow our dedicated business and politics pages for more infromation on Croatia's financial situation, doing business in Croatia, and the overall business and investment climate.

Thursday, 21 December 2017

Zdravko Marić Comments on Agrokor, Growth Expectations and Economy

The finance minister also stated that most analysts and economists expect GDP growth of 3.1 or 3.2 percent this year, and the differences are small.

Saturday, 23 September 2017

S&P Keep Croatia's Credit Rating at BB, Outlook Improved to Positive

Croatia's rating could be raised even more if economic recovery continues.

Monday, 11 September 2017

Analysts Forecast GDP Growth for Croatia

Good news?

Wednesday, 30 August 2017

Croatian Economy Marks Growth for 11th Consecutive Quarter

The biggest contribution to GDP growth in the second quarter was achieved by the growth of household final consumption expenditures, which rose by 3.8 percent.

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