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Croatia: Economic outlook remains poor and fragile

Tue, Sep 22 2009, 08:40 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

Summary

• Economy likely bottomed out in 1H09 – outlook remains fragile and recovery slow – economy seen contracting by 5.5% in 2009, stagnant in 2010
• Domestic demand remains weak, with investment activity taking severe hit – net export contribution to remain positive, due to strong contraction on import side
• Labor market seen to come under upward pressures in coming quarters
• Current account deficit seen contracting to around 5% of GDP, supported by merchandise account adjustment – pressure to remain subdued in 2010
• Refinancing risks have not materialized so far – while risks remain, overall global environment improved, implying declining risks
• Credit activity stagnating, due to supply and demand side factors
• Inflation developments stable – average inflation forecast remains 3% in 2009
• Exchange rate to remain stable on strong CNB commitment and steady refinancing
• Public debt financing focused on foreign markets and short-term domestic market – fiscal uncertainty continues to weigh on financing operations
• Equity market witnessed turnaround in March, mainly driven by positive developments from abroad and despite mostly negative domestic news flow - positive movements persisted, but certain risks remained, challenging sustainable market recovery
• Croatian accession negotiations could be unblocked this autumn, after assurances were given to Slovenia that they will not pre-judge border settlement

Content

• Slow recovery ahead
• External imbalances narrowing
• EU negotiations process set for revival

• Download full report with charts

Published on  Tue, Sep 22 2009, 08:47 GMT