Now Available: Croatia Business Forecast Report Q4 2012

Recently published research from Business Monitor International, "Croatia Business Forecast Report Q4 2012", is now available at Fast Market Research

by Bill Thompson

(WireNews+Co) - Boston, MA - 21 October 2012

The outlook for Croatia's economy in 2012 remains dour and we forecast a full-year contraction of 1.5% in real terms.

A combination of dampened household consumption and the start of fiscal austerity by the Kukuriku coalition government will return the Croatian economy to recession following flat growth in 2011.

Core Views

View Full Report Details and Table of Contents (http://www.fastmr.com/prod/451172_croatia_business_forecast_report_q4_2012.aspx) (http://www.fastmr.com/prod/451172_croatia_business_forecast_report_q4_2012.aspx)

While we expect the Croatian government to miss its target for a 3.8% of GDP budget deficit in 2012 and forecast a higher deficit of 4.7%, we remain relatively sanguine on the country's fiscal outlook. This is underpinned by strong commitment to fiscal austerity from the Kukuriku coalition government and supportive rhetoric from ratings agencies. The latter will also see to it that financing costs continue to fall, bolstering our bullish Croatian debt view.

We believe Croatia's Kukuriku coalition government is well placed to maintain its parliamentary majority and push through with necessary fiscal consolidation and economic restructuring. However, we see potential flashpoints that could undermine the cohesion of the coalition in the coming years, and stall the economy's reform process. Major Forecast Changes We have revised down our forecast for real GDP growth in Croatia to -1.5% in 2012 from 0.1% previously. This revision came on the heels of statements from the Kukuriku coalition outlining their intention to implement hefty expenditure cuts. We have revised upwards our forecast for Croatia's average consumer price inflation in 2012 to 3.5%, from 3.0% previously.

This was largely predicated on the government's plans to raise the VAT rate to 25% from 23%, effective March 1, and the sustained rise in global energy prices at the start of the year, which will boost imported inflationary pressure. Key Risks To Outlook A more pronounced slowdown in eurozone growth than we are currently forecasting would weigh considerably on Croatian growth. The country is heavily reliant on the external market for growth, particularly while government expenditures are dragged down by fiscal austerity and as consumers struggle to bounce back from the global recession.

One upside risk to our fiscal and investment forecasts would be the government's ability to find a buyer for the country's beleaguered shipyards. While this target remains a key EU accession process chapter, a lack of interest has meant the government has been unable to sell the shipyards. In the event that the new government finds a buyer, it would take a significant strain off public finances and could have the potential to increase investor interest in the country, thereby improving Croatia's investment outlook.

 

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