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BMI Croatia Country Risk Report Q2 2018.Pdf IMPORTANT NOTICE: The information in this PDF file is subject to Business Monitor International Ltd’s full copyright and entitlements as defined and protected by international law. The contents of the file are for the sole use of the addressee. All content in this file is owned and operated by Business Monitor International Ltd, and the copying or distribution of this file, internally or externally, is strictly prohibited without the prior written permission and consent of Business Monitor International Ltd. If you wish to distribute the file, please email the Subscriptions Department at [email protected], providing details of your subscription and the number of recipients you wish to forward or distribute this information to. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Croatia Country Risk Report Includes 10-year forecasts to 2027 www.bmiresearch.com Q2 2018 Contents Executive Summary ................................................................................................................................. 5 Core Views ......................................................................................................................................................................................5 Key Risks ........................................................................................................................................................................................5 Chapter 1: Economic Outlook ................................................................................................................. 7 SWOT Analysis .......................................................................................................................................................... 7 BMI Economic Risk Index ......................................................................................................................................... 7 Economic Growth Outlook ....................................................................................................................................... 8 Growth To Cool As External Demand Softens ............................................................................................................................8 Following a strong 2017, Croatian real GDP growth will slightly decelerate over the next two years as a strong outlook for consumption and construction compensate for weaker external dynamics. That said, in order to boost long-term growth potential, structural reform implementation needs to be accelerated. GDP By Expenditure Outlook ................................................................................................................................. 10 TABLE: GDP GROWTH FORECASTS ...................................................................................................................................................................10 TABLE: PRIVATE CONSUMPTION FORECASTS ................................................................................................................................................. 10 TABLE: GOVERNMENT CONSUMPTION FORECASTS ...................................................................................................................................... 10 TABLE: FIXED INVESTMENT FORECASTS .........................................................................................................................................................10 TABLE: NET EXPORTS FORECASTS ...................................................................................................................................................................11 External Trade And Investment Outlook ............................................................................................................... 12 Narrowing Current Account Surplus No Threat To External Stability .....................................................................................12 Strong imports, cooling externa demand and moderating tourism growth will see Croatia's current account surplus narrow over the coming years. That said, the country's net international investment position is set to further improve, reducing Croatia's vulnerability to external shocks. Outlook On External Position ................................................................................................................................. 13 TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE ........................................................................................................................................ 13 TABLE: CURRENT ACCOUNT BALANCE FORECASTS ...................................................................................................................................... 14 TABLE: TOP 5 GOODS EXPORTS IN 2016...........................................................................................................................................................14 TABLE: TOP 5 GOODS IMPORTS IN 2016 ...........................................................................................................................................................14 Monetary Policy ....................................................................................................................................................... 15 Weak Supply Side Pressures To Keep Inflation Subdued........................................................................................................15 While a strong outlook for the Croatian consumer will exert upward pressure on core inflation, the headline rate will remain well anchored as regional and commodity price pressures remain subdued. Meanwhile, the government's plan of joining the eurozone in the next seven-to-eight years seems feasible in our view. TABLE: FULFILMENT OF NOMINAL EUROZONE CONVERGENCE CRITERIA ................................................................................................. 16 Monetary Policy Framework ................................................................................................................................... 16 TABLE: MONETARY POLICY FORECASTS..........................................................................................................................................................17 Fiscal Policy And Public Debt Outlook ................................................................................................................. 18 Narrowing Budget Deficit Facilitating Debt Reduction .............................................................................................................18 We expect Croatia's budget deficit to narrow over the next two years, as a prudent fiscal policy and a healthy outlook for the economy will facilitate further deficit reduction. Given our small fiscal deficit forecasts, coupled with subdued borrowing costs and robust real GDP growth, we anticipate that the country's public debt ratio will continue to fall in the quarters ahead, serving the government's ultimate goal of joining the eurozone in the next seven to eight years. Structural Fiscal Position ....................................................................................................................................... 19 TABLE: FISCAL AND PUBLIC DEBT FORECASTS .............................................................................................................................................. 19 TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES ............................................................................................................................ 20 Business Monitor International Ltd www.bmiresearch.com 3 CROATIA Q2 2018 Chapter 2: 10-Year Forecast .................................................................................................................. 21 The Croatian Economy To 2027 ............................................................................................................................. 21 No Meaningful Convergence Without Structural Reforms .......................................................................................................21 The Croatian economy has the potential for robust long-term growth underpinned by convergence within the EU, but regional headwinds and structural economic inefficiencies make this unlikely unless the government enacts crucial reforms. TABLE: LONG-TERM MACROECONOMIC FORECASTS .................................................................................................................................... 21 Chapter 3: Political Outlook .................................................................................................................. 23 SWOT Analysis ........................................................................................................................................................ 23 BMI Political Risk Index .........................................................................................................................................
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