Croatia Country Report - June, 2015

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Croatia Country Report - June, 2015

This report reviews key macroeconomic data and microeconomic developments for Croatia published between June 8 and July 5, 2015.
The World Bank said in June it expects Croatia’s economy to expand by 0.5% this year and thus record its first growth after six straight years of decline. The growth should strengthen in the next two years, by 1.2% in 2016 and 1.5% in 2017.
The IMF warned that fiscal vulnerabilities, incomplete corporate balance sheet repair, and structural weaknesses pose risks to Croatia’s economic recovery, while Moody’s Investors noted in a report that Croatia-based issuers are the most vulnerable to the euro depreciation against other currencies.
The report provides details on the latest developments regarding the Ionian-Adriatic Gas Pipeline (IAP) and contains information about the planned initial public offering (IPO) of Croatia’s HAC ONC, the maintenance and tolling unit of motorway operator Hrvatske Autoceste.
It also shows which EU member states decided to maintain labour market restrictions for Croatian citizens.


Key Points:

• Croatia's consumer prices stayed flat on the year in May following a 0.1% annual decline in the previous month. The working-day adjusted industrial output rose 4.4%, accelerating from 1.2% in April. The annual growth of the first five months of the year reached 1.3% y/y.
• First quarter current account deficit widened to €1.28bn from a deficit of €625.8mn in Q4 2014.
• The unemployment rate fell to 17.1% in May from 18.4% in April. This was the third consecutive month of decrease. The average net monthly wage rose 3.4% in April, slowing from a 3.9% hike in March.
• January-April trade gap narrowed 4.1% y/y as exports rose at a faster pace than imports.


Table of Contents

EXECUTIVE SUMMARY 4
MACROECONOMIC OVERVIEW 5
Fiscal vulnerabilities pose risks to Croatia’s recovery, IMF says 5
World Bank keeps Croatia’s growth outlook at 0.5% in 2015 5
Moody's sees Croatia as most vulnerable to euro depreciation 6
REAL SECTOR 6
1. GDP, Inflation 6
Consumer price levels in Croatia at 67% of EU average in 2014 6
Croatia's consumer prices flatten in May 7
Decline in Croatian producer prices eases in May 7
2. Industry and Trade 8
Growth in Croatia's industrial output accelerates in May 8
Growth in Croatia’s industrial sales slows in April 9
Croatia's retail sales growth accelerates in May 9
3. Labour Market 10
Croatia’s unemployment rate falls to 18.1% in Q1 – labour force survey 10
Croatia’s average net monthly salary rises by real 3.4% y/y in April 10
Croatia’s unemployment rate drops to 17.1% in May – flash estimate 10
Labour costs in Croatia up 2.3% y/y in first quarter 11
4. Tourism 11
Croatia sees tourism revenues hitting record €7.5bn this year 11
Croatian travel agencies, tour operators post €12mn loss in 2014 11
FISCAL SECTOR, MONETARY POLICY 12
Croatia’s current account deficit doubles q/q to €1.28bn in Q1 12
Croatian c-bank foreign reserves up 8.8% y/y to €14.2bn at end-May 13
Croatia's M4 money supply up 3.2% y/y to €35.7bn at end-May 13
Croatia sells €42.5mn worth of kuna T-bills, misses target 13
FINANCIAL INTERMEDIATION 14
EBRD mulls €40mn loan to Croatia’s Raiffeisen Factoring 14
Zagreb bourse’s turnover rises 5.6% m/m to €26.9mn in June 14
Croatia negotiating with 20 investors for HPB capital hike, privatisation official claims 14
Croatian insurers' premium income rises 4.3% y/y in January-May 15
EBRD sells stake in Croatia’s Privredna Banka Zagreb 15
Net assets of Croatian open-end investment rise 8.2% m/m in May 16
Croatian mandatory pension funds’ assets up 19.4% y/y in May 16
EXTERNAL SECTOR 17
Croatia's trade gap narrows 4.1% y/y in January-April 17
Croatia’s gross foreign debt rises 2.5% m/m in March 17
Croatia's trade gap widens 0.3% y/y in January-March 18
STRUCTURAL REFORMS 18
Croatia’s HEP, Germany’s RWE set up new joint venture 18
Five EU countries extend labour market restrictions for Croats 19
IPO of Croatia’s HAC ONC could be completed by year-end, transport minister claims 19
Croatia plans €60.1mn upgrade at Split airport 20
Foreign ministers of Montenegro, Croatia, Bosnia, Albania sign joint statement to support TAP-linked gas pipeline 20
Hungary’s MET, Croatia’s PPD reportedly set to buy stake in Petrokemija 21
POLITICS 22
Croatia’s opposition HDZ Party keeps leading position with 27.5% backing - poll 22

Number of pages: 22
Release Date: Mon, 06 Jul 2015