Croatia Country Report - March, 2016

April 25, 2016

This report reviews key macroeconomic data and microeconomic developments for Croatia published between March 6 and March 31, 2016.
Moody’s has downgraded Croatia's long-term issuer and senior unsecured debt ratings to Ba2 from Ba1 and maintained the negative outlook due to large and increasing government debt burden, and weak medium-term growth prospects. Now, all three rating agencies, including Moody’s, Fitch and S&P, rate Croatia at two notches below the investment grade with negative outlooks.
The Zagreb Institute of Economics (ZEI) slightly revised its forecast for real GDP growth in 2016 to 1.5% in its latest quarterly economic outlook from a previous 1.3%, based on newly released data for 2015. ZEI forecasts 1.8% GDP growth in 2017.
The report also provides details on economic sentiment indicators, and construction output. It mentions latest developments in bilateral relations between Croatia and Slovenia. The report also reveals the latest investments in tourism sector, and the details on public borrowing.

Key Points:

• Croatia is targeting this year a budget deficit of HRK7.5bn equivalent to 2.2% of GDP and a general budget deficit of HRK9.2bn equivalent to 2.7% of GDP when state agencies and municipal authorities are taken into account. The finance ministry expects the economy to expand by 2% this year. Consumer prices inflation is seen at 0.1% and the government also plans to reduce the jobless rate below 16% this year.

• Croatia's consumer prices fell 1.4% y/y in February, deepening from a 0.8% annual decline the previous month.

• Croatia's registered unemployment rate stood at 17.8% in February, 0.1pp down compared to January and 1.8pp down compared to February 2015.
• Croatia's trade deficit widened by 9% y/y to HRK52.2bn in January from HRK3.17bn a year ago, as exports declined despite an increase in imports.

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