Croatia economy

First quarter GDP figures from Croatia and Slovenia show that the former continues to slide backwards, albeit at a slower rate, while the latter continues its export-led recovery.

Croatia’s economy has not shown meaningful growth since 2008 and remains lumbered with structural problems that the government seems barely able to address. It shrank again in the first quarter, by 0.4 per cent, having contracted by 1.2 per cent in the last quarter of 2013. 

Croatia’s Adriatic coast is best known for its beautiful mountain scenery, clear blue sea and dozens of charming Venetian-influenced towns and cities. But the former Yugoslav country’s government hopes it will become equally well known for what may lie beneath those pristine waters – billions of dollars’ worth of oil and gas. 

Six years of recession and government “inertia” are taking their toll on the EU’s newest member, according to Standard & Poor’s, which downgraded Croatia on Friday. The country’s long-term debt rating now stands at BB, lowering it further into non-investment grade. Hopes of an immediate departure from years of stalling on reform are dim – and it is scant reassurance that Croatia is not yet in fiscal crisis. 

Croatia’s accession to the European Union on July 1 may have been hugely significant for a country putting years of Communist dictatorship and subsequent war behind it. But its first three months of membership have been characterised by economic decline, rather than the hoped-for resurgence. And the immediate outlook is not much sunnier. 

Ouch. The investment grade party is definitely over for Croatia. Rating agency Fitch has downgraded it to BB+, putting it firmly into junk territory.

It’s more of a hiss than a pop: of the three main rating agencies, S&P already had the country on BB+ and Moody’s downgraded Croatian debt as to Ba1 (the equivalent to BB+) back in February. 

By Erik Berglof and Peter Sanfey of the EBRD

Croatia’s accession to the European Union on Monday is a triumph – for the country and for the EU. For Zagreb, it is a triumph of perseverance – the completion of a process that began hesitantly in the 1990s and that faced many obstacles.

The European Commission, perhaps mindful of the accusation that some previous entrants were not fully prepared for membership, has subjected Croatia to greater scrutiny than any existing member. For the EU, the accession of Croatia is a demonstration of its “soft power” – its ability to persuade countries to implement difficult and unpopular reforms. 

By Gunter Deuber of Raiffeisen Bank International

The 28th member country of the EU will not raise the economic profile of the bloc. For in recent years, the Croatian economy has been one of the weakest in Europe.

But if Croatian policy makers are banking on EU accession creating a “halo-effect” of capital inflows, they will most likely be disappointed. The only way the country will benefit from membership will be through modernisation and structural reforms. 

This might have been a triumphant year for Croatia. Less than a decade and half after its war of independence, the country will join the EU in July, symbolically returning to the mainstream European fold after decades of authoritarianism and conflict.

But 2013 could well be yet another year in recession for the troubled Croatian economy. A flash estimate published on Thursday suggested that GDP had shrunk 2.0 per cent in the full year 2012 – and prompting forecasts of a grim 2013. 

A fistful of kunaCroatia is set to become the European Union’s latest member in July, but Moody’s decision to downgrade its credit rating shows long-awaited accession cannot quickly fix the country’s woes. The sluggish pace of reform and a tight fiscal position have exacerbated the difficulties caused by the eurozone crisis. 

A grim reminder on Friday of the economic havoc that the eurozone crisis is wreaking in the Balkans.

Croatia’s GDP shrank 1.9 per cent year-on-year in the third quarter, according to to the state statistics bureau, putting the country well on the way to a 2 per cent contraction for 2012, the fourth year of recession in a row. Hardly the best preparation for joining the EU next July. 

“Croatia is clearly not yet ready for membership.” Not the message that Zagreb wanted to hear as it prepares for EU accession, particularly from a figure as senior as the speaker of the German parliament.

The statement by Bundestag speaker Norbert Lammert (pictured) , made in an interview with the German newspaper Welt am Sonntag, comes at an unfortunate time, as Croatia faces growing scepticism over its EU membership bid and a Slovenian threat to block the process altogether. But despite the flak, Croatia still looks set to join the EU on July 1 2013 as planned. 

While the Croatian tourism sector is currently celebrating the best of times, for the broader economy the news isn’t getting any better.

The country attracted more visitors than ever before this summer, on target to bring in €7bn by the end of the year. But this was not enough to rescue GDP, which has now contracted for a third consecutive quarter. 

By Alen Kovac of Erste Bank

The Fitch rating agency’s decision this month to upgrade its outlook on Croatia to stable and affirm the country’s investment grade status was more than welcome.

But Croatia needs to make further efforts to secure the stabilty of its credit ratings over the next few years. 

Croats may not know much about Benjamin Franklin, one of America’s most influential founding fathers, but they are certainly getting to know about one of his most famous quotations: “but in this world nothing can be said to be certain, except death and taxes.”

That, at least, is the hope of the Croatian inland revenue, which last week – to the consternation of some, and the delight of many – published lists of 102,000 tax debtors. The list includes construction giants, high-profile business personalities, humble craftsmen and rock stars who, so the authority claims, owe the state some 52bn kuna (€6.9bn) in total. 

Croatia’s government on Thursday announced plans for sweeping spending cuts aimed at curbing deficit growth and strengthening weakened credit ratings.

Zoran Milanovic, the new prime minister whose centre-left majority coalition took power last month, proposed cuts of 4.6bn kuna (€630m /$795m) in the 2012 budget, with the austerity spread around evenly to minimise the pain.