OUTLOOK: 2022 Croatia

OUTLOOK: 2022 Croatia
By bne IntelliNews January 12, 2022


Relatively few dramas are expected in 2022, after the ruling coalition led by the Croatian Democratic Union (HDZ) remained stable in 2021. The HDZ won the general election in 2020, gaining 66 out of 151 seats in parliament. The HDZ received the support of the national minority parties, which elect eight MPs, as well as the People's Party — Reformists and the Croatian People's Party — Liberal Democrats (HNS) who won one seat each in the new parliament. 

Meanwhile, the relations between HDZ’s leader and Prime Minister Andrej Plenkovic and President Zoran Milanovic remained complicated through 2021. Milanovic is from the main opposition party, the Social Democratic Party (SDP), the long-term rival of the HDZ. The tensions between Plenkovic and Milanovic have escalated multiple times, with the president criticising the government’s handling of the coronacrisis and a deal to buy Rafale fighter jets.

Croatia’s political life was dominated in 2021 by the coronavirus pandemic and its effect on people’s lives. There are no immediate signs of the situation calming as Croatia entered 2022 with record-high cases as the Omicron variant spreads in the country, though there are hopes of normalisation when the current wave subsides. 

During the fourth wave of the pandemic, the government introduced mandatory COVID-19 certificates, restricting access to most public areas. Only people with the certificates can go to cultural events, restaurants and other venues. This triggered numerous protests. The opposition MOST party initiated a procedure to gather signatures for calling a referendum on the certificates. If it succeeds, a referendum could be expected in early 2022. 

Meanwhile, Croatia, which became an EU member in 2013, has set as its goal to join the Schengen area in 2022 and the Eurozone at the beginning of 2023.

In December, EU member states said that Croatia has fulfilled the criteria to join the Schengen travel area. However, although the country has met all requirements, its accession to the Schengen area was in question due to migration issues. There have been numerous reports of police violence during pushbacks of migrants.



GDP growth: After falling by more than 8% in 2020 due to the coronavirus (COVID-19) pandemic, Croatia’s economy recovered better than expected in the first three quarters of 2021, mainly thanks to the strong summer tourist season. According to statistics office data, the GDP expanded by 15.8% y/y in the third quarter, while growth stood at 10.7% y/y in the first nine months of 2021.

Plenkovic commented that this growth was the biggest ever since the country has existed (though clearly the low base was a major factor).

According to Croatia’s government, economic growth is expected at 4.4% in 2022, down from 9% projected for 2021. In 2023, the economy should expand by 3.7%, and in 2024 by 3.1%.

The European Commission projected in its autumn economic forecast that the economic growth in 2021 would reach 8.1% thanks to strong private consumption and the better than expected summer tourist season.

Government consumption should support the economic growth although its contribution is expected to decline. Investment is seen rising, supported by the Recovery and Resilience Facility (RRF), the previous and current Multiannual Financial Frameworks and the Solidarity fund disbursements to support post-earthquake reconstruction.

The EC expects that GDP will rise by 5.6% in 2022 and by 3.4% in 2023. The volume of GDP should reach its 2019 level during 2022.

External environment: Croatia posted a current account deficit in 2020 when the economy was negatively affected by the coronavirus pandemic. Although the projections are that the country could reduce the deficit or turn to a surplus, central bank data for the second quarter of 2021 showed a deficit of 0.2% of GDP.

The central bank has commented that the balance in the current and capital account worsened slightly in the second quarter compared to the same period a year earlier, due to an increase of foreign trade deficit and a deterioration of the primary account balance.

According to the International Monetary Fund (IMF), Croatia’s current account deficit is forecast to decrease to 0.1% of GDP in 2021 from 0.4% in 2020. It should expand to 0.8% of GDP in 2022, with the current account seen turning to surplus in 2026.

The World Bank has projected that the country will turn to a current account surplus equal to 1.6% of GDP in 2021. The current account surplus should reach 2% of GDP in 2022 and rise to 2.4% of GDP in 2023.

Croatia’s foreign trade deficit amounted to HRK47bn (€6.25bn) in the first nine months of 2021, up from HRK42.5bn in January-September 2020, according to statistics office data.

The trade deficit expanded in the first nine months of 2021 as exports recovered faster than imports after the start of the coronavirus pandemic.

Inflation and monetary policy: Croatia’s consumer prices were largely affected by rising energy prices in 2021, as well as by higher private consumption. The World Bank has projected the consumer price inflation at 2.3% in 2021, up from 0.2% in 2020. For 2022, consumer prices are expected to rise by 1.5% and should go up by 1.7% in 2023.

The IMF has projected that consumer prices would rise by 2.9% in 2021 and slow down to 2.1% in 2022.

Croatia’s central bank has also projected that inflation would reach 2.3% in 2021 and slow down to 2.1% in 2022, backed mainly by rising prices of oil and food.

So far, consumer prices in Croatia increased by 3.8% year-on-year in October. Meanwhile, producer prices increased 16.6% year on year in November, after rising by 16.4% y/y in the previous month, according to statistics office data.

Industrial production: Croatia’s industrial sector was seriously affected by the coronavirus pandemic, but started recovering in 2021 as the tough restrictions were lifted. Its pace of growth will depend on the further development of the pandemic.

Industrial output in Croatia increased 2.7% in year-on-year terms in October 2021 and by 1.9% month on month, according to the latest available statistics office data. The y/y rise was supported by the manufacturing sector that went up by 0.9% y/y, as well as by the electricity, gas, steam and air conditioning supply that increased by 13.5% y/y. In the mining sector output moved down by 4.6% y/y.

Compared to October 2020, energy output increased by 10.4% y/y, followed by durable consumer goods (8.7% y/y), capital goods (3.7% y/y) and non-durable consumer goods (3.4% y/y), while production of intermediate goods decreased by 3.1% y/y.

In monthly terms, seasonally and working-day adjusted industrial production expanded in manufacturing by 0.3%. In mining it decreased by 10.7%, while in electricity, gas, steam and air-conditioning supply it increased by 13.2% m/m.

Production of durable consumer goods increased by 10.9% m/m, followed by energy (up 8.2% m/m) and non-durable consumer goods (up 3.4%), while production of intermediate goods decreased by 2.2% m/m, followed by capital goods (down 0.2% m/m).


Real economy 

Retail: Croatia’s retail sector was affected by the cronacrisis and lower private consumption in 2020. However, it started recovering in 2021. As well as the lifting of restrictions on the Croatian population, the summer also saw a rising number of tourists, albeit in smaller numbers than before the pandemic began, further pushing up retail trade. Statistics for July and August showed that the summer season was strong, close to pre-crisis levels.

Retail trade turnover increased in Croatia by 8.7% annually and fell by 1.9% in monthly terms in October. The largest impact on the increase in the nominal turnover in October compared to the same month of the previous year came from the automotive fuels and lubricants with a rise in turnover of 37.1% and an impact on the total trade turnover of 6.7%, as well as from the non-specialised stores with food, beverages and tobacco predominating with a rise in turnover of 8% and an impact on the total turnover of 2.7%.

In 2022, the retail sector is expected to further expand unless the authorities are forced to impose a new countrywide lockdown. So far, the government’s policy is to restrict the access to public areas only for unvaccinated people.

Banks: Croatian banks remained stable during the coronacrisis thanks to the prudent measures of the central bank. The country also joined the EU’s banking union in 2020, which was additional guarantee for the stability of the sector.

In 2021, the sector performed well and remained liquid. Banking system liquidity measured by the liquidity coverage ratio (LCR) continues to be high (206.9%), with all credit institutions meeting the minimum liquidity requirements, according to central bank data for the first nine months of the year.

At the end of September 2021, total assets of credit institutions stood at HRK493.0bn, up by 6.6% from the end of 2020. Assets increased in most credit institutions.

The increase in total loans and advances by 6.4% and the decrease in non-performing loans (NPLs) by 8.1% resulted in a further decline in the share of NPLs in total loans, from 5.4% at the end of 2020 to 4.7% at the end of September 2021.

The decline in total NPLs was driven by their decline in non-financial corporations, with the share of this sector’s NPLs in loans falling from 12.5% to 10.7%. NPLs continued to rise in the portfolio of household loans; however, owing to a rise in loans and advances to that sector, the share of NPLs held steady at 7.1%.

Meanwhile, the sector remained profitable, generating a net profit of HRK4bn at the end of September 2021, an increase of 59.3% over the same period in 2020. As a result, the return on assets (ROA) rose from 0.8% to 1.1% and return on equity (ROE) rose from 5.5% to 8.3%.

The effects of retained profit for 2020 and targeted regulatory adjustments related to the pandemic resulted in high values of key indicators of banking system capitalisation. At the end of September 2021, the total capital ratio of the banking system stood at 25.6%, with all credit institutions maintaining total capital ratios above the minimum of 8%.

In 2022, the banking sector is expected to remain stable and profitable.

However, Croatian banks will still face challenges in 2022 and will have to invest between €80mn and €100mn to adjust their IT systems to the adoption of the euro, according to Zdenko Adrovic, head of the Croatian Banking Association (HUB).

Croatia is preparing to adopt the single European currency and the government hopes it will join the Eurozone at the beginning of 2023.

Industry: Croatia’s star industrial company is the electric supercar producer Rimac Group, which has been going from strength to strength and is expected to develop even further in 2022. Rimac has attracted a lot of attention from the car industry as the world’s major automakers prepare for the electric future. 

The company launched a joint company with Bugatti Automobiles, Bugatti Rimac, in November. The Rimac Group will be the major shareholder in Bugatti Rimac with a 55% stake. Founder Mate Rimac will retain his shareholding in Rimac Group at 35%, with Porsche at 22%, Hyundai Motor Group at 11% and other investors at 32%.

The development, production and supply of battery systems, drivetrains and other electric vehicle (EV) components will be separated into a new entity, Rimac Technology, which will be 100% owned by the Rimac Group. Rimac Technology will remain an independent company working with many global car manufacturers.

Meanwhile, Rimac Group kicked off construction of a new global headquarters that will be located near the capital Zagreb. The project it estimated to cost €200mn. The complex will cover 100,000 square metres and should be completed by 2023.

The new headquarters will serve as the company’s international R&D and production base. The company’s goal is to ramp up there from prototype and smaller volume projects to high-volume production of its high-performance electric drivetrain and battery systems for many global car companies. At the same time, the Campus will serve as the production base for all future Rimac models and their key components, including the Rimac Nevera. 

More broadly, Croatia’s industry was affected by the coronavirus pandemic in 2020 but started recovering in 2021. 

Oil and gas company INA said on March 9 it plans to invest HRK4bn (€530mn) in the upgrade of its refinery at Rijeka in a project that should be completed by the end of 2023.

The project envisages construction of a heavy residues processing plan and should improve the manufacturing scope of Rijeka refinery, increasing the share of profitable “white oil” products in its output.

In June 2020, it announced plans to build a €250mn biorefinery in Sisek, central Croatia, that will enable it to produce second-generation bioethanol from biomass. INA is also investing €50mn into establishing a raw material supply chain, growing the energy plant miscanthus.

Djuro Djakovic, one of the biggest industrial groups in Croatia, is embarking on a restructuring, after the European Commission approved Croatia's plans to provide a HRK430.6mn (€57.4mn) state aid to the mechanical engineering company. Djuro Djakovic produces vessels for the petrochemical industry, armoured fighting vehicles and equipment for thermal and hydropower plants.

According to the restructuring plan, a consortium of Czech private companies active in the same sector, DD Acquisition, will participate in a share capital increase with cash and in-kind contributions of approximately €64mn. After the capital hike, DD Acquisition will become the controlling shareholder of Djuro Djakovic and will support various aspects of its restructuring with cash and synergies.

Croatia’s shipbuilding industry has had a tough few years but there was some better news in 2021 and 2022, boding well for the future. Despite years of financial difficulties, the Uljanik shipyard remains in operation and a small new ship has been contracted. In January 2022, the Brodosplit shipyard in Split announced two new contracts to build ships this year, worth over €200mn. Also in January, the 3.Maj shipyard said it had been given the go-ahead to complete the construction of a bulk cargo vessel for Canadia’s Algoma Central Corporation.

Another Croatian company – the shipping company Jadroplov – intends to raise its capital by up to HRK350mn (€47mn) in 2022, after putting plans to sell new shares on hold in September last year.

The company's supervisory board decided to give a green light to the launch of preparatory works for a capital increase by between HRK150mn and HRK350mn via a new share issue. The final price of the new shares will be determined before the launch of their public offering with the capital hike planned to be carried out in several rounds. In the first round, existing shareholders will have priority.

In 2021, Jadroplov said it plans to use the funds to renew its fleet of vessels in order to lower the average age of its fleet to between five and eight years. However, the capital increase has been halted until the company’s management decides whether the already completed phases of this process are in line with the company's internal rules and the applicable regulations.

While Jadroplov is moving its share issue plans forward, Croatian fertiliser producer Petrokemija intends to delist its shares from the Zagreb Stock Exchange. The plan was already approved by the management and supervisory boards. Although Petrokemija provided no details on the reasons for the delisting, local media reported that it might be related to an offer by Turkish holding company Yildirim. 

Energy & power: Croatia has committed to the green energy goals of the EU. The country plans to protect 30% of the area of the Adriatic Sea under its jurisdiction and plant 1mn new trees a year until 2030. The goal is to compensate for the impact of tourists on carbon dioxide emissions. Croatia will aim to reduce its carbon emissions by 45% by 2030 and will stop using coal for energy generation by 2033.

In December 2021, the European Commission approved a €783mn Croatian scheme for state aid to support electricity production from renewable sources. The measure will help Croatia reach its renewable energy targets, including those set in its Recovery and Resilience plan.

The scheme should enable Croatia to support renewable electricity production from a wide range of technologies. The measure will contribute to the reduction of CO2 and other greenhouse gas emissions, in line with the EU Green Deal objectives and the environmental targets set in Croatia's Recovery and Resilience plan, without unduly distorting competition in the single market.

Under the scheme, Croatia will provide a premium on top of the electricity market price. The premium will be set through tenders and will not be higher than the difference between the average production cost for each renewable technology and the electricity market price. The measure will be open until 2023 and the aid will be paid out to the selected beneficiaries for a period of 12 years.

Among the investments into renewables, power utility Hrvatska Elektroprivreda (HEP) intends to build seven solar power plants with total capacity of 60 MW, after signing agreements with six municipalities and one city. The projects are part of HEP’s plan to invest in the construction of 350 MW of solar power plants in the period 2019-2030. The total value of the projects is HRK380mn (€50.54mn). HEP also said it plans to start the construction of a 75MW solar power plant in 2022, estimated to cost over HRK500mn next to the Korlat wind farm.

In the oil and gas sector, Croatian oil and gas group INA issued a HRK2.0bn (€266mn) bond in December, intending to use the funds for servicing its debt, finance acquisitions in equipment and facilities, and for new investments.

Meanwhile, Croatia intends to challenge a 2016 ruling by the United Nations trade tribunal upholding a deal that has given control of INA to Hungary’s MOL. The government decided to take legal action after the Croatian supreme court upheld the guilty verdicts against former Croatian prime minister Ivo Sanader for taking a bribe from MOL head Zsolt Hernadi in October. The review motion must be filed by February 8, and a response is expected by the end of 2022.

Croatia will not proceed with the plan to buy back MOL’s stake until the new legal action is completed. Economy Minister Tomislav Coric said the two parties had different views on the price of the stake and were unable to reach an agreement until now.

At the end of December, Croatian state oil pipeline operator Janaf extended its agreement for crude oil storage with BP Oil International and inked a new contract with Lukoil Croatia. The annex to the contract for crude oil storage extends its term from April 1, 2022 to March 31, 2023. Janaf also inked a deal with Lukoil Croatia on the storage of petroleum products from January 1, 2022 to end-December 2023.

Janaf operates 622 kilometres of pipelines and has crude oil and oil products terminals on the island of Krk, as well as in Sisak, Virje, Slavonski Brod and Zitnjak.

Construction: Croatia’s construction sector should pick up in 2022 as the works recovery from two earthquakes in 2020 is expected to intensify.

The sector started showing signs of recovery in 2021 with the volume of construction works increasing by 10.6% through September, according to the latest available statistics office data. Construction works on buildings moving up by 10.9% y/y, while civil engineering increased by 10% y/y.

Among the projects expected in 2022 is also the construction of a sustainable nature resort by the hotel operator Valamara River, in which HRK223 will be invested in 2022. The sum will be invested by Helios Faros, in which Valamara River is a minority shareholder.

The nature resort is a new concept from Valamar for a sustainable eco-friendly village for family holidays that should implement the use of ecologically acceptable building materials with minimum impact to the environment, usage of energy from renewable sources and high level of energy efficiency.

In the longer term, Helios Faros intends to invest HRK800mn in sustainable tourism by reconstruction and construction of three hotels and resorts of four and five stars.

Major Sectors: Tourism remains a key sector for Croatia’s economy, contributing more than 20% to GDP. In 2020, the sector showed a better than expected recovery, boosting the economic growth. This trend is expected in 2022, unless the coronavirus pandemic hits harder.

To prevent that, the country is putting efforts into persuading the population to get vaccinated. Despite that, so far only just over 50% of people are vaccinated.

The strong recovery of the tourism industry positively affected food sales. Atlantic Grupa, one of the region’s largest food and consumer goods groups, with brands including Argeta, Barcaffe, Grand Kafa and Smoki, posted a consolidated net profit of HRK399.8mn (€53.21mn) for the first nine months of 2021, up by 13.9% y/y.

Another food and retail company - Fortenova Group, the successor company to bankrupt food and retail giant Agrokor – also showed good performance in 2021. Its consolidated net profit stood at HRK1.3bn (€173mn) in January-September, an improvement of HRK1.855bn from the loss recorded in the same period of 2020.

Fortenova Group has invested €125mn in the first nine months of 2021 in Croatia and the nearby region and plans to make capital investments of €130 in 2022.

The company’s biggest investment in the production segment is a €11.5mn bottling line for non-alcoholic beverages at Jana bottling unit in Croatia. Its installation is at the final stage.

Fortenova also said that preparations for the launch of works on a €29.3mn cooking oil factory in Serbia and €8.2mn slaughterhouse in Croatia are a final phase.

Croatia, with a population of just over 4mn, has seen the emergence of a slew of high tech champions in the fields of IT software and hardware. Overall, Croatia is punching above its weight when it comes to technology; Deloitte’s latest ranking of the 50 fastest-growing tech companies in the Central and Eastern Europe region included five Croatian companies, and this is not the first time Croatia has had a substantial number of entrants in the ranking. 

The latest included cryptocurrency brokerage and payment processor Electrocoin, e-commerce platform bazzar.hr, agriculture technology company AGRIVI, Eco Mobile, which specialises in ICT solutions for waste management, and smart bench creator Include. 

In the robotics field, artificial intelligence (AI) startup Gideon Brothers raised a $31mn Series A investment in a round led by Koch Disruptive Technologies (KDT), the venture and growth arm of Koch Industries, in 2021. Gideon plans to use the funds to accelerate the development and commercialisation of its AI and 3D vision-based autonomous mobile robots (AMRs). It will also expand its manufacturing, sales, marketing and customer service operations across key markets in the EU and US by opening offices in Munich and Boston.

In the software sphere, IT and telecoms company Infobip achieved tech unicorn status – signifying a startup valued at over $1bn – in August 2020, when it raised over $200mn in its first funding round from One Equity Partners.


Budget and debt 

Croatia’s budget deficit is set at 2.6% of GDP for 2022, down from 4.5% expected in 2021. The country aims to meet the fiscal convergence criteria for joining the euro area.

Total budget revenue for 2022 is projected at HRK164.5bn (€21.9bn), while the expenditure is projected at HRK174bn.

The public debt to GDP ratio is expected at 83.1% of GDP in 2021, and should fall to 80.7% in 2022, 78% of GDP in 2024.

Croatia has already received €818mn in a pre-financing payment under the Recovery and Resilience Facility (RRF) in September. The sum is equivalent to 13% of the country's total financial allocation under the RRF.

Croatia is set to receive €6.3bn under the RRF. The next disbursements will be based on the implementation of the investments and reforms outlined in Croatia's recovery and resilience plan.

The Croatian plan includes investments in green transition, digital transition and in reinforcement of economic and social resilience.

Of the total €6.3bn sum, the country plans to invest €728mn to support sustainable mobility by upgrading railway lines, developing autonomous electric taxis with supporting infrastructure adapted for people with disabilities, installing 1,300 charging stations for electric vehicles and introducing zero-emission vehicles and vessels.

Another €126mn should go for improvement of digital connectivity of rural areas, by increasing national broadband coverage with gigabit connectivity in rural areas and the construction of electronic communications infrastructure. Croatia will also invest €287mn to support the digital transition of the public administration, including the digitalisation of the justice system, the interoperability of the government's information systems, the deployment of the Digital Identity Card, the introduction of smart working arrangements and the creation of a one-stop-shop for all the public administration's online services.

The plan will also provide €739mn to improve the business environment by reducing the administrative burden, lowering regulatory requirements for professional services, and increasing access to financing for businesses. Another €200mn will be invested in improving the efficiency of the public sector and the justice system. Croatia will also invest €277mn to support employment and social inclusion by redesigning active labour market policies to boost employment and self-employment, funding vouchers for training and upskilling programmes, improving the adequacy, targeting and coverage of social benefits and developing new social services.



Croatia’s bourse, the Zagreb Stock Exchange, started recovering in 2021 following the deep drop as the pandemic hit in 2020. That brought the Zagreb Stock Exchange’s Crobex10 above 2,000 points psychological threshold in June for the first time since the pandemic started.

Crobex went beyond 2,000 points for the first time on June 25. It stood at 2,001 points on June 28, dropping 0.17% from the previous trading day.

Crobex has been on a rising trend in most of 2021, going beyond 2,000 points in October and stay there since then.

In March, the Securities Commission of the Republic of North Macedonia issued an approval decision to the Zagreb Stock Exchange for further acquisition of Macedonian Stock Exchange share. Its stake rose to more than 20% from 5.3%.

In June, local media reported that Rimac is considering an initial public offering in 2022. The car producer is seeking to get valuation of around €5bn. The company has not revealed details of the plan.