Croa­tia

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In 2015, Croa­tia is ex­pected to see an end of re­ces­sion and post a 0.5% an­nual GDP growth, ac­cord­ing to fore­casts of the World Bank, the Euro­pean Bank for Re­con­struc­tion and Devel­op­ment, and the In­ter­na­tional Mon­e­tary Fund. The growth will be un­der­pinned by ex­ports, fu­elled by de­mand from the euro­zone coun­tries, re­duced oil prices, and in­vest­ments un­der EU pro­grammes. De­spite the growth fore­cast, Standard&Poor's Rat­ings Ser­vices has re­vised the out­look on Croa­tia to neg­a­tive on lag­ging re­forms.

Croa­tia saw no eco­nomic growth for a sixth con­sec­u­tive year in 2014. The coun­try's EU mem­ber­ship could not boost its econ­omy with do­mes­tic de­mand re­main­ing lim­ited be­cause of high un­em­ploy­ment and in­signif­i­cant growth in wages. Croa­tia is highly de­pen­dent on the tourism industry, which ac­counted for more than 12% of the coun­try's GDP in 2014, one of the high­est lev­els among the coun­tries in South­east Europe.

Other macroe­co­nomic in­di­ca­tors, which shaped the na­tional econ­omy in 2014, were the an­nual de­fla­tion caused by the weak do­mes­tic de­mand, the grow­ing ex­ter­nal debt, in par­tic­u­lar the govern­ment ex­ter­nal debt, and the shrink­ing cur­rent ac­count sur­plus. Some pos­i­tive de­vel­op­ments in­cluded a rise in ex­ports thanks to the coun­try's EU mem­ber­ship, which helped re­duce the ex­ter­nal trade gap, the in­crease in new build­ing per­mits, and an up­trend in in­dus­trial out­put.

Ex­cept tourism, Croa­tia's econ­omy ben­e­fits from re­mit­tances of Croa­t­ian em­i­grants. In 2014, the re­mit­tances rose by 1.8% to more than 1.3 bil­lion euro, ac­cord­ing to data from the World Bank.

In the Do­ing Busi­ness 2015 re­port of the World Bank, Croa­tia ranked 65th, two places above its po­si­tion in the 2014 re­port. Ac­cord­ing to the re­port, Croa­tia made eas­ier: start­ing a busi­ness by re­duc­ing no­tary fees; deal­ing with con­struc­tion per­mits by re­duc­ing the re­quire­ments and fees for build­ing per­mits and car­ry­ing out the fi­nal build­ing in­spec­tion more promptly; and trad­ing across bor­ders by im­ple­ment­ing a new elec­tronic cus­toms sys­tem. The coun­try made pay­ing taxes more com­pli­cated for com­pa­nies by rais­ing the health in­sur­ance con­tri­bu­tion rate, in­creas­ing the Croa­t­ian Cham­ber of Econ­omy fees and in­tro­duc­ing more de­tailed fil­ing re­quire­ments for Value Added Tax.

The coun­try also dropped by two places in the Global Com­pet­i­tive­ness Re­port 20142015, pub­lished by the World Eco­nomic Fo­rum. Croa­tia ranked 77th out of 144 coun­tries thus be­ing one of the worst per­form­ers among the coun­tries in South­east Europe. The key fac­tors, which weak­ened the coun­try's com­pet­i­tive­ness, were bu­reau­cracy, pol­icy in­sta­bil­ity, and cor­rup­tion. In the 2013-2014 re­port Croa­tia ranked 75th out of 148 coun­tries.

The coun­try's GDP de­creased by a real 0.4% and to­talled 328.9 bil­lion kuna in 2014, ac-

cord­ing to pre­lim­i­nary data of the Croa­t­ian Bureau of Sta­tis­tics (DZS).

Fi­nal con­sump­tion, which con­trib­uted 80.0% to the GDP, fell by nom­i­nal 1.2%. Gross cap­i­tal for­ma­tion was down by 4.1%, con­tribut­ing 18.6% to the GDP. Both im­ports and ex­ports grew - by 2.3% and 6.1%, re­spec­tively.

The gross value added (GVA) gen­er­ated by the na­tional econ­omy de­creased by 0.5% in value in 2014 and to­talled 278.3 bil­lion kuna. The in­dus­trial sec­tor fell by 0.7% and its share in the GVA struc­ture inched down to 21.06% from 21.11% a year ear­lier. The con­struc­tion sec­tor was down by 6.1% y/y and had a share of 5.0% in the GVA against 5.3% in 2013. The ser­vices sec­tor recorded a 0.2% an­nual in­crease, get­ting a 69.8% share in the GVA, up from 69.3% in the pre­vi­ous year. The agri­cul­tural sec­tor reg­is­tered an an­nual drop of 3.0%, thus nar­row­ing its share in the GVA to 4.1%, from 4.3%.

In­dus­trial out­put was up by 1.3% in 2014, ac­cord­ing to DZS data. The man­u­fac­tur­ing sec­tor grew by 3.1%, while the min­ing sec­tor went down by 6.4%, fol­lowed by elec­tric­ity and gas sup­ply with a 5.2% an­nual de­cline.

Man­u­fac­ture of rub­ber and plas­tic prod­ucts was the seg­ment to re­port the high­est an­nual pro­duc­tion growth of 24.4% while man­u­fac­ture of to­bacco prod­ucts dropped the most by 14.7%. Re­tail sales were down by 1.2% in 2014 af­ter a 2.7% an­nual growth in 2013, ac­cord­ing to DZS data. In 2012, re­tail sales inched down by 0.3% on the year.

The whole­sale sec­tor was down by 2.8% in 2014, af­ter a 0.6% de­cline in 2013 and a 3.2% drop in 2012.

Consumer prices in Croa­tia turned to an an­nual av­er­age de­fla­tion of 0.2% in 2014 from a 2.2% an­nual av­er­age in­fla­tion in 2013. In 2014 the high­est an­nual de­crease in consumer prices was reg­is­tered in oils and fats, veg­eta­bles, and liq­uid fu­els of 12.1%, 6.4% and 5.6%, re­spec­tively. The consumer groups with high­est in­fla­tion were postal ser­vices with 13.8%, hol­i­day ser­vices with

10.6%, and hos­pi­tal ser­vices with 8.7%.

Un­em­ploy­ment in Croa­tia nar­rowed to 19.6% of the to­tal labour force at end-2014 from 21.6% a year ear­lier, ac­cord­ing to data of DZS.

The em­ployed population aged 15 years and older was 1.303 mil­lion in De­cem­ber 2014, down by 1.3% y/y.

Broad money (money ag­gre­gate M4) in­creased by 2.8% y/y and reached 287.6 bil­lion kuna in De­cem­ber 2014, ac­cord­ing to data pro­vided by the Croa­t­ian Na­tional Bank (HNB).

The M1a money jumped by 9.4% to 65.8 bil­lion kuna and money ag­gre­gate M1, or nar­row money, also went up, by 9.2%, to 63.5 bil­lion kuna.

The gross ex­ter­nal debt to­talled 46.7 bil­lion euro at the end of De­cem­ber 2014. It widened by 1.6%, or 752 mil­lion euro com­pared to De­cem­ber 2013. In com­par­i­son to Septem­ber 2014 the gross ex­ter­nal debt grew by 198 mil­lion euro.

The cur­rent ac­count sur­plus rose to 286.4 mil­lion euro in 2014 from 358.9 mil­lion euro in 2013, ac­cord­ing to cen­tral bank sta­tis­tics data.

FDI nearly tripled in 2014 to 2.88 bil­lion euro, com­pared to 735 mil­lion euro in 2013, ac­cord­ing to HNB data.

In 2014, the Nether­lands was the big­gest for­eign in­vestor in Croa­tia with FDI of 2.4 bil­lion euro. Switzer­land came sec­ond with 0.522 bil­lion euro and Aus­tria was third with 401 mil­lion euro.

Source: In­ter­na­tional Mon­e­tary Fund (IMF) World Eco­nomic Out­look Data­base – April 2015

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