Croatia Country Report - September, 2015

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Croatia Country Report - September, 2015

This report reviews key macroeconomic data and microeconomic developments for Croatia published between September 4 and October 6, 2015.
In the beginning of October, the IMF raised its 2015 growth forecast for Croatia’s economy to 0.8% from 0.5% projected in April.
Croatia’s economy expanded by 1.2% y/y in the second quarter of the year, supported both by domestic and foreign demand, the statistics office said confirming its flash estimate released in August. Later in September, the Zagreb Institute of Economics (EIZ) revised up by 0.1pp to 0.5% its growth estimate for the Croatian economy this year.
In September, the Croatian government revised the 2015 budget law, keeping the planned deficit at 3.8% of GDP. The 2015 GDP growth was revised up to 1.1% from 0.5%.
The parliament approved the conversion of loans denominated in Swiss francs with part of the principal being written off and all the costs being borne by the bank. A number of foreign banks had already renewed threats to take the Croatian state to Court over the measure.
The report also provides details on the organisation of the second licensing round for offshore hydrocarbon exploration and the signing of production sharing agreements for onshore and offshore oil and gas exploration.
It also contains information on the way Croatia handled the migrant crisis and announces the date when general elections will be organised.


Key Points:


• Croatia's consumer prices fell 0.6% y/y in August, after dropping 0.4% the previous month. The working-day adjusted industrial output rose 2.8%, slowing from 2.9% in July. The annual growth of the first eight months of the year reached 1.9% y/y.
• The unemployment stayed flat on the month a 15.9% in August after five consecutive months of decrease. The average net monthly wage rose 3.8% in July, slowing from a 4.5% hike in June.
• January-July trade gap narrowed 2.5% y/y as exports rose at a faster pace than imports.


Table of Contents

EXECUTIVE SUMMARY 4
MACROECONOMIC OVERVIEW 5
IMF revises up Croatia’s 2015 growth forecast to 0.8% 5
REAL SECTOR 5
1. GDP, Inflation 5
Croatia’s GDP to grow 0.5% in 2015, 1% in 2016 – Zagreb Institute of Economics 5
Croatia's GDP growth confirmed at 1.2% y/y in second quarter 6
Headline inflation in Croatia deepens to negative 0.6% y/y in August 6
Economic outlook for Central and Eastern Europe worsened in September 7
2. Industry and Trade 7
Croatia's industrial output growth slows in August 7
Croatia's retail sales growth slows in August 8
Croatia’s constructions index up 0.4% y/y in July 8
3. Labour Market 9
Croatia’s unemployment rate flattens m/m in August 9
Croatia’s average net monthly salary rises by real 3.8% y/y in July 9
4. Tourism 10
Croatia’s H1 tourism revenues rise 7.5% to €2.27bn 10
Croatia sees tourists spending at €9.3bn this year 10
Number of night spent by tourists in Croatia up 10.7% y/y in July 10
FISCAL SECTOR, MONETARY POLICY 11
Croatia turns to current account surplus in second quarter 11
Croatia expects no borrowing until next year - FinMin 12
Croatia's M4 money supply up 1.9% y/y to €36.7bn at end-August 12
Croatia rejects all bids in T-bills auction amid low demand 13
Croatia revises 2015 budget, ups GDP growth forecast from 0.5% to 1.1% 13
FINANCIAL INTERMEDIATION 14
Croatia provides liquidity to facilitate Swiss franc loans conversion 14
Croatian state-owned bank HPB raises capital by €72mn 15
Croatian insurers' premium income rises 2.7% y/y in January-August 15
Croatian parliament approves conversion of Swiss franc loans into euro 16
Croatia’s ZABA hikes stake in Bosnia’s UniCredit Bank Mostar to 99.3% 17
Banks to take Croatia to court over Swiss franc loans conversion 18
Croatian mandatory pension funds’ assets up 14.7% y/y in August 18
EXTERNAL SECTOR 19
Croatia's exports growth decelerate to 5.2% y/y in July – flash estimate 19
Croatia’s gross foreign debt falls 0.7% m/m in June 19
Croatian c-bank foreign reserves up 16% y/y to €14.4bn 20
STRUCTURAL REFORMS 21
EIB approves €17.5mn loans for Croatian airport upgrade 21
Croatia delays signing of oil/gas deals for after elections 21
Croatia keeps 77th place in global competitiveness ranking for 2015-2016 22
Croatia to launch second licensing round for offshore exploration by year-end 22
POLITICS 23
Croatia to hold general elections on November 8 23
Croatian Supreme Court annuls corruption conviction against former PM, sets bail for his release 24
Croatia and Serbia continue to argue over migrant issue 25

Number of pages: 26
Release Date: Thu, 08 Oct 2015