Croatia Country Report - June, 2014

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Croatia Country Report - June, 2014

This report reviews key macroeconomic data and microeconomic developments for Croatia published between June 3 and July 4, 2014.
The World Bank dramatically downgraded its GDP forecast for Croatia for the current years, saying the economy will contract by 0.5% in 2014 instead of growing 0.8% as expected back in December. This is still somewhat more optimistic than the IMF’s projection for a 0.8% contraction this year.
At the same time the statistics office confirmed its flash estimate that the Jan-March GDP dropped by 0.4% y/y, verifying everyone’s fears that Croatia has entered a sixth consecutive year of recession.
In other to curb the rising budget gap amid the lasting recession, the government has decided that state-owned firms will pay part of their profits to the state budget.
Some positive economic news came from the tourism sector, which saw the Jan-April revenue from tourists rising 21% to some EUR 755mn.
The report also contains information about the estimated damage in the country from the mid-May floods that hit the region. It also speaks about Adris Grupa raising its stake in the country’s largest insurer Croatia Osiguranje, as well as about Agrokor’s plans to take over the remaining stake in Slovenian peer Mercator – and the price per share it is ready to offer to the small shareholders.

Key points:

• CPI dropped by 0.2% y/y in May following a 0.5% y/y decrease in April 2014. Retail sales rose 1.8% y/y in May after edging up 0.3% y/y in annual terms the previous month.
• The working-day adjusted industrial output recovered in January-May (up 1.3% y/y) after contracting in the prior nine months in a row on an annual level. It rose by 1.2% y/y in May alone, building up on the 0.6% y/y increase a month earlier.
• The unemployment rate continued to decline in monthly terms in May to 19.66% from 21.1% in April and 22.3% in March. It was also below the end-2013’s 21.6%. The average net monthly wage continued rose by a real 0.9% y/y in April after increasing 0.1% y/y in March.

Table of Contents

EXECUTIVE SUMMARY 4
MACROECONOMIC OVERVIEW 5
World Bank sees Croatia’s economy shrinking 0.5% in 2014 5
Croatia objects EC recommendation to accelerate retirement age increase process 5
REAL SECTOR 5
1. GDP, Inflation 5
Croatia's Q1 GDP drop confirmed at 0.4% y/y - stats office 5
Croatia's GDP per capita at 61% of EU average in 2013 - Eurostat 6
Croatia's consumer prices fall 0.2% y/y in May 2014 7
Croatia's PPI down 2.2% y/y in May 2014 7
Consumer price levels in Croatia at 68% of EU28 average in 2013 9
2. Industry and Trade 9
Croatia's industrial output growth speeds to 1.2% y/y in May 2014 10
Croatia's labour productivity in industry up 3% y/y in Jan-May 2014 11
Croatia's retail sales down 1.8% y/y in May 2014 – first results 11
Croatia’s industrial turnover down 2.9% y/y in Jan-April 2014 11
3. Labour Market 12
Croatia’s unemployment rate drops to 19.6% in May – flash estimate 12
Number of employed persons in Croatia falls 2% y/y in May 2014 12
Croatia's seasonally-adjusted unemployment falls to 16.3% in May - Eurostat 13
Croatia’s average net monthly salary up by real 0.9% y/y in April 2014 13
4. Tourism 13
Tourist arrivals in Croatia inch up 0.2% y/y in May 2014 - first results 14
Tourist arrivals in Croatia up 17% y/y in April 2014, 4-mo tourism revenue up 21% y/y 14
FISCAL SECTOR, MONETARY POLICY 14
Croatian state-owned companies to pay part of 2013 profit into state budget 14
Croatia estimates flood damages at EUR 224.5mn 16
Croatian c-bank FX reserves up 8% y/y to EUR 13bn at end-May 2014 16
Croatia sells EUR 54.9mn worth of kuna T-bills, above target 16
Croatia sells EUR 67.3mn worth of kuna T-bills on June 10 16
FINANCIAL INTERMEDIATION 17
Croatia’s Adris Grupa raises stake in insurer Croatia Osiguranje to 53.56% 17
Moody's says banking systems of Balkan states on threshold of recovery, sees region’s 2014 GDP up 2% 17
Croat c-bank approves Vaba Banka's takeover by Czech lender J&T 18
Total gross written premiums in Croatia fall 2.6% y/y in Jan-May 2014 18
Croatian bank deposits up 3.2% y/y to EUR 30.9bn at end-April 2013 18
Croatian mandatory pension funds’ assets up 10% y/y at end-May 2014 19
Croatian open-end investment funds’ net assets rise 3.31% m/m at end-May 19
Zagreb bourse’s turnover drops 11.1% m/m to EUR 38.8mn in June 2014 19
EXTERNAL SECTOR 19
Croatia's current account deficit widens 12.8% y/y to EUR 1.56bn in Q1 2014 19
Croatia's trade gap shrinks 2.7% to EUR 2.25bn in Jan-April 2014 - first results 20
Croatia's 2013 trade gap widens 5.9% to EUR 6.9bn – final data 20
Croatia’s FDI inflow drops 57% y/y to USD 580mn in 2013 - UNCTAD 21
STRUCTURAL REFORMS 21
Croatia to launch tender for onshore oil/gas exploration in July 21
Croatian govt to create special company to take over public sector's non-core services 22
EBRD to cut stake in Croatia’s Agrokor to 2.31% 22
Croatia’s Agrokor says plans buyout bid for Slovenia's Mercator at EUR 86/share 23
POLITICS 23
Croatia’s supreme court upholds Sanader’s verdict, shortens sentence 23
Croatia’s ruling party SDP expels former finance minister Linic 24

Number of pages: 24
Release Date: Fri, 04 Jul 2014