The Croatian GDP fall in the third quarter of an unprecedented and extremely tumultuous year dominated by a global pandemic and enormous economic downturn has been less than previously expected, but it unfortunately remains in double digits.

As Poslovni Dnevnik/Jadranka Dozan writes, after the second quarter of Croatian economic activity under the harmful influence of lockdown introduced to prevent the spread of the new coronavirus recorded a record 15.5 percent decline when compared to the same quarter last year, in the third quarter, the decline was mitigated but remained double-digits. This doesn't come as much of a shock to anyone.

According to the first estimate of the Central Bureau of Statistics, during the three summer months, the Croatian GDP fall stood at 10 percent on an annual basis, while compared to the second quarter of this year, according to seasonal adjustments, economic activity increased by 6.9 percent.

When observed according to the components of Croatia's GDP, the decline on an annual basis (i) in the third quarter was recorded by almost all major categories, with government consumption standing out as an exception.

Personal consumption, on the other hand, decreased by 7.5 percent, and as its share in domestic GDP is by far the largest and the contribution of this component to GDP growth / decline is usually crucial. However, the largest decrease in the quarter, which in Croatia is mostly marked by tourism, was expected to be achieved in exports and imports, and primarily in services. Exports of services fell by a concerning 45 percent (from -3% in goods, total exports weakened by 32.3 percent), while on the other hand, imports of services sank an equally worrying 33 percent when compared to the third quarter of last year, including goods (-9, 9%), with total imports falling 14.1 percent.

The so-called Gross fixed capital formation fell to 3 percent in the third quarter after falling by almost 15 percent in the second quarter.

Regarding the first estimate of quarterly GDP for the period July-September, the CBS points out that the circumstances related to the ongoing coronavirus pandemic "reflected the availability and reliability of data and information commonly used to estimate quarterly GDP."

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As Novac/Marina Klepo writes on the 23rd of November, 2020, after falling 15.1 percent in the second quarter, seven Hina analysts predict that the Croatian GDP will sink slightly less in the summer quarter, averaging 10.4 percent. Their estimates range from 9.5 to 11 percent, and if they materialise, despite a better-than-expected tourist season, Croatia will find it extremely difficult indeed to avoid one of the biggest declines among all EU countries.

According to the first Eurostat data for 21 countries, the average decline across the EU in the third quarter was 4.3 percent, and except for the United Kingdom with a deficit of 9.6 percent, the Spanish economy was most heavily affected with a decline of 8.7 percent, while in In Italy it stood at 4.7 percent.

Tourist spending

As one Hina analyst explained, with the easing of anti-epidemic measures during the summer months, most activities began to recover and the first high-frequency indicators confirmed growth in the third quarter compared to the March-June period, but a relatively high annual Croatian GDP decline is inevitable.

CBS datas show that retail trade turnover fell by 7.6 percent in the third quarter when compared to the same period last year, among other things due to significantly lower tourist spending. At the same time, industrial production fell by 1.3 percent, the value of merchandise exports in the first nine months of 2020 was 4.8 percent lower than it was during the very same period last year, and imports fell by an alarming 10.1 percent. Finally, government spending remains the only component of Croatian GDP that mitigated these utterly negative trends.

The CNB estimates that the ''real'' Croatian GDP in the first nine months of this year was 8.3 percent lower than it was back during the same period last year. Given the rapidly deteriorating epidemiological situation, expectations for the fourth quarter have also deteriorated alongside it.

Economic analysts also expect that Croatian GDP will continue to decline very sharply indeed because of, among other things. lower amounts of disposable income, lower festive spending and a further decline in exports. According to their expectations, the decline this year will stand at around 9.2 percent, similar to the EC's forecasts, which are at 9.6 percent, while the Croatian Government and the CNB believe that it will amount to 8 percent.

Next year, however, the government and the CNB are currently convinced that the domestic economy will grow by 5 percent, and the European Commission believes that its growth will stand at a decent 5.7 percent. The latest EBRD forecasts, on the other hand, claim that there will be slightly more modest growth in 2021, of only 3.5 percent. In addition, they point out that negative risks prevail, especially those related to the spread of the novel coronavirus, SARS-CoV-2. The EBRD has since reiterated its position that Croatia needs structural reforms in order to properly increase the competitiveness of the economy, and in addition to those already undertaken, the improvement of the quality of Croatia's typically horrendous institutions and governance is considered to be particularly important.

The business environment

In addition, as they point out in the latest Transition Report, it is necessary to improve the business environment in Croatia and remove all of the draconian and mostly entirely unnecessary red tape and administration, but also to diversify the economy properly. The current pandemic, according to the EBRD, has shown the danger of relying too much on one or two sectors, and Croatia must now think twice about lying on its tourism laurels.

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July the 8th, 2020 - The European Commission (EC) isn't very optimistic as far as Croatia's predicted GDP drop for 2020 is concerned, but is there light at the end of the tunnel for 2021, at least?

The ongoing coronavirus pandemic has been wreaking havoc with the global economy and Croatia's, which is heavily reliant on tourism and hospitality, has been far from immune to these negative trends. The Croatian economy is heavily influenced by seasons, on top of that, with a drop in unemployment usually occurring at the tail end of March as business owners seek out waiters, chefs, cleaners, bar staff and more. This trend was stopped in its tracks before it could even gain any momentum by the pandemic.

April was an absolutely dire month for Croatia in every possible economic sense as lockdown saw consumption and hiring as we know it grind to a halt. Things are improving now, and in some sectors in a better way than we could have expected, but just what does the European Commission envisage for the rest of this year?

As Novac writes, Croatia will face even more severe consequences of the COVID-19 pandemic than previously thought. According to the latest forecasts published recently by the European Commission, the decline in GDP for Croatia this year will be as much as 10.8 percent, and next year the recovery will begin and growth will be 7.5 percent.

Only Italy with a drop of 11.2 percent and Spain, with a drop of 10.9 percent, will have a bigger drop than Croatia. Both of these popular Mediterranean countries which are also very tourism-oriented were hit tremendously hard by the virus. A similar category includes France, where GDP expected to fall by 10.6 percent, and Greece, the GDP of which is down by 9 percent.

From the above, it is evident that the countries for which tourism is one of the key branches will be the hardest hit. Poland, which should have a 4.6 percent drop, and Sweden, 5.3 percent, will feel the lightest of blows.

The latest report of the European Commission, along with the summer forecasts, states that the Croatian economy was more resilient before the outbreak of this crisis than it was before the global financial crisis back in 2008. The reports notes the fact that the growth of domestic demand will play the biggest role in Croatia's overall recovery next year.

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As Jadranka Dozan/Poslovni Dnevnik writes on the 1st of June, 2020, as we reported recently, the credit rating agency Standard & Poors has kept Croatia's current ratings, although, like most others, it predicts a 9 percent drop in GDP this year, meaning that Croatian GDP will continue to feel the negative effects of the ongoing coronavirus pandemic for some time yet.

On Friday, state statisticians used a series of economic indicators to quantify the scale of the corona crisis on the Croatian economy.

In addition to estimating Croatian GDP for the first quarter, which the coronavirus pandemic severely affected by reducing annual growth to a mere 0.4 percent, the Central Bureau of Statistics (CBS) announced double-digit rates of decline in retail sales and industrial production for April, Croatia's lockdown month, with the fiercest direct blow to the domestic economy.

As much as the April minuses of 25.5 percent (retail trade turnover) and 11 percent (industrial production) come as a concerning shock, they aren't really a surprise. However, Standard & Poors made sure that the weekend started with a little less bad news for Croatia.

It reaffirmed Croatia's existing credit rating (BBB-) and maintained a stable outlook for the next revision. The report will certainly not do any harm to Finance Minister Zdravko Maric's position, who should enter the international market next week with new Eurobonds, the sale of which will seek to raise significantly more money than the amount needed to refinance 1.25 billion dollars of old bond debt. S&P has kept its current ratings, although, like most others, it predicts a 9 percent drop in Croatian GDP this year, which is one of the highest projected fall rates in the entire European Union (EU) for 2020.

Croatian GDP's recovery could begin in the second half of the year, which could result in a 5.3 percent increase next year, and 2.5 percent a year later, they forecast. Overall, the return of Croatian GDP to the 2019 level, they say, isn't likely before 2023, as the recovery in the tourism sector will also be very gradual.

With this new report, the agency is early in its regular audit calendar for more than obvious reasons.

The confirmation of Croatia's investment rank (although it remains the lowest on that scale) is explained primarily by the expectation that the tourist season will not completely fail (it is likely to record a drop of about 70 percent) because Croatia is a destination to which many can drive for the largest emitting markets such as Germany, Austria and Slovenia, making it a little less dependent on air travel recovery.

In addition, the S&P emphasised the solid level of the Croatian National Bank's international reserves, as well as the recent agreement with the European Central Bank on the so-called currency swap worth up to two billion euros. This should alleviate any immediate external pressures on liquidity and on the kuna's exchange rate.

The aforementioned amount of available currency swap could be further increased when Croatia joins the European Exchange Rate Mechanism (ERM 2), that's if it does end up joining it this summer, the report states.

After the Croatian Government submitted an official request to enter what is commonly known as the "lobby" or ''waiting room'' during the procedure to adopt the euro in July last year, in addition to which it undertook a number of ''homework assignments'', the result of all that remains to be seen.

In the meantime, the findings of the ECB's asset quality review and bank resilience testing, which affected five banks in Croatia, are expected.

As the asset quality review refers to last year, and given the above-average capitalisation of local banks, it seems that these findings shouldn't be an obstacle to Croatia's entrance into ERM 2. The government recently concluded that all points of the action plan have now been met. However, S&P emphasises that in addition to the aforementioned "tangible" benefits, joining ERM 2 could be an incentive for structural reforms.

The key risk for a return below the investment grade rating for Croatia would be the scenario of new travel restrictions and an economic downturn that would result in a more pronounced impact on the deteriorating balance of payments and a more permanent weakening of public finances and an upward public debt trajectory.

Although Croatia is heavily dependent on tourism and less integrated into global value chains than comparable countries are, S&P believes that reducing macroeconomic imbalances in recent years has created the basis that a temporary shock to the economy should not result in more permanent damage to the country's credit metrics.

With the tools at the disposal of the central bank (with generous foreign exchange reserves further strengthened by the arrangement with the ECB), S&P estimates that even in the scenario of a 90 percent drop in tourism revenues (without other serious outflow pressures), the CNB could successfully cope with depreciation pressures.

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ZAGREB, April 30, 2020 - The government forecasts that this year Gross Domestic Product (GDP) will fall by 9.4% while in 2021, recovery is expected at a rate of 6.1%.

The government session on Thursday discussed the 2020 National Reform Programme and the Croatia's Convergence Programme for 2020 and 2021.

The convergence programme projects the contraction of the national economy by 9.4% in 2020 while in 2021 the government expects a recovery and growth rate of 6.1%.

Opening the cabinet meeting on Thursday, Prime Minister Andrej Plenković said that with reference to economic policies the National Reform Programme rests on three existing objectives that the government had set at the outset of its term.

That is sustainable growth and development, connecting education with the labour market and the sustainability of public finances.

Under a baseline scenario, the main adverse impact on the domestic, and global economy will be of a short-term nature.

It is expected that the general government budget will record a deficit of 6.8% of GDP or HRK 24.8 billion in 2020 while in 2021 the general government budget deficit is expected to be reduced to 2.4% of GDP, he said.

The public debt to GDP ratio in 2020 is expected to grow by 13.5 percentage points compared to 2019 and will amount to 86.7% of GDP, mostly due to increased needs for borrowing as a consequence of the negative fiscal effects caused by the coronavirus pandemic.

In 2021, subsequent to reducing the general government budget deficit to 2.4% of GDP and strong economic growth it is expected that the public debt to GDP ratio will fall to 83.2% of GDP, which is a drop of 3.5 percentage points compared to 2020.

Consumer prices are expected to drop mildly in 2020 by 0.3% year on year.

The government is counting on job-keeping measures to buffer the shock on the unemployment rate and that the fall in the number of people employed will drop by 3.3% in all of 2020, and the average surveyed unemployment rate in 2020 will amount to 9.5% and 9% in 2021.

As far as fiscal trends are concerned, direct aid from the budget is estimated at HRK 14.9 billion which includes deferments on taxation and contributions, writing-off direct taxes and contributions, deferring profit tax for 2019, job-keeping incentives and the procurement of medical protective equipment in the fight against COVID-19.

An additional HRK 15 billion has been secured for favourable loans for entrepreneurs under schemes provided by the development bank HBOR and and the HAMAG BICRO agency, as well as HRK 17 billion for a moratorium on loans.

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ZAGREB, April 14, 2020 - In 2020 Croatia's economy will contract by nine percent, the most in the group of emerging European economies, shows the latest global economic forecast of the International Monetary Fund (IMF), published on Tuesday.

The coronavirus pandemic has been strongly impacting economic activity, shows the latest forecast, reflecting the consequences of quarantine and other stringent measures with which governments around the globe have been trying to fight the new, highly contagious virus.

According to the latest IMF forecast, Croatia's GDP will drop by 9% this year. For the sake of comparison, last autumn, before the outbreak of the epidemic, the IMF forecast a growth rate of 2.7% for Croatia's economy in 2020.

In 2021 recovery is expected, with an estimated growth rate of 4.9%.

The international lender has also revised the growth rate for 2019 to 2.9%, down by 0.1 percentage point.

The IMF expects a significant increase in unemployment this year, to 11.5%, as against the autumn forecast of an unemployment rate of 8%.

In 2019 unemployment was at 7.8%, whereby the October 2019 forecast has been revised down by 1.2%.

In 2021 unemployment is expected to drop again, to 8%.

The IMF also forecasts a deficit in the current account, expressed as a share in GDP of 4% in 2020, whereas in its autumn forecast it predicted a surplus of one percent.

A deficit in the current account of 1.5% is forecast also for 2021.

The forecast about consumer price growth in 2020 has been revised up by 0.1 percentage point, to 1.3%. In 2021 prices are expected to grow at an almost unchanged rate of 1.2%.

In 2019, according to the IMF's estimates, prices grew by 0.8%, a downward revision of the autumn forecast by 0.2 percentage points.

According to the latest forecast, the surplus in 2019 was 2.9%, which is 1.2 percentage points higher than forecast in October 2019.

The latest IMF estimates show that this year Croatia's economy is expected to drop the most in the group of emerging European economies, which also encompasses Russia, Turkey, Poland, Romania, Ukraine, Hungary, Belarus, Bulgaria and Serbia.

The IMF estimates that those economies will drop by 5.2% on average this year, as against a 2.5% growth, forecast in the autumn of 2019.

In 2021, strong recovery is expected, with an estimated growth rate of 4.2%.

Last year, the emerging economies grew by 2.1% on average, 0.3 pp more than forecast by the IMF in October 2019.

A more pronounced drop in economic activity is expected this year in Ukraine and Belarus, of 7.7% and 6% respectively. The two countries are followed by Russia, with an estimated drop of 5.5%, and Turkey and Romania, each with a decline of 5%.

Poland's economy is expected to contract by 4.6% and Bulgaria's by 4% while economic activity in Hungary and Serbia is expected to contract the least, by 3.1% and 3% respectively.

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The economic consequences of the coronavirus outbreak are potentially dire, and we're already seeing the negative effects the virus is having on the labour market, stock markets, and much more. With many Croatian companies having to deal with the brand new and utterly unexpected reality of not knowing whether or not they'll even exist in three months, these are truly nail biting times.

As Frenki Lausic/Novac writes on the 2nd of April, 2020, in a new rating, the Fitch credit rating agency left the Republic of Croatia's main rating at BBB minus, which is encouragingly still at investment level, but lowered its outlook from positive to a mere stable.

The aforementioned agency predicts, due to the crisis caused by the spread of coronavirus and the stringent restriction measures that have been put in place to try to combat it, that Croatia's GDP will drop by a significant 5.5 percent in 2020, instead of experiencing the previously projected growth of 2.9 percent.

"Croatia is highly dependent on tourism and activities related to tourism, which together account for 25 percent of the country's GDP. Croatia has taken measures to mitigate the coronavirus crisis, which will amount to 7.5 percent of GDP, but additional measures can be expected,'' stated Fitch, referencing a report that made this assessment before the Croatian Government adopted a second package of coronavirus measures.

In the baseline scenario, the agency expects a rapid recovery in the second half of the year and even economy growth of three percent in 2021, and an average growth of 2.2 percent in the coming years.

The Republic of Croatia's state budget deficit is also projected to grow to five percent in 2020, instead of the projected surplus of 0.2 percent so far, and a rise in public debt to 77.7 percent of GDP, instead of the previously expected 68.1 percent, is also now expected.

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ZAGREB, March 20, 2020 - Croatia will face a steep fall in GDP this year, of almost 5% on the year, while seasonality in tourism demand and weak industry will make recovery slower in comparison with other countries, Raiffeisenbank Austria analysts have said.

The current situation and coronavirus spread will have a significant impact on the Croatian economy, especially due to its strong dependence on tourism, according to a special publication, "Covid-19", published by RBA on Friday.

It is already quite certain that there will be no preseason, and the impact of the epidemic on the peak tourist season is expected to increase. The consequence will be a fall in overnight stays and loss of tourism revenue, RBA said.

The bank's analysts reiterate that at least a fifth of overnight stays and tourism revenue in Croatia can be matched to Q2, while the main tourist season, which falls in Q3, accounts for 70% of overnight stays and revenue.

Among the sectors at risk, RBA analysts include the service sector, especially transport and all other services that depend on tourism: accommodation, food and beverage services, recreation and entertainment and travel services. They add that the manufacturing industry - chemical, paper, textile, lumber etc. - will most certainly experience a decrease in supply and demand since the main Croatian export markets are EU countries, especially Italy and Germany, so a slump in goods export is inevitable in Q2.

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ZAGREB, February 28, 2020 - Croatia's economy grew by 2.5% in the fourth quarter of 2019 compared to Q4 2018, which is a lower rate than in Q3, when economic growth was at 2.9%.

The national statistical office (DZS) on Friday published its preliminary estimate, which shows that GDP saw an annual increase of 2.5% in Q4 2019, the 22nd consecutive quarter to see an increase in GDP albeit lower than in the previous quarter.

In 2019 GDP grew by 2.9%, which is more than the year before, when the growth rate was 2.65%.

The faster GDP growth in 2019 was mostly owing to a strong, 4.1% increase in the first quarter, while in the second quarter GDP grew 2.4% and in the third it rose 2.9% on the year.

The biggest positive contribution to GDP growth in Q4 2019 came from an increase in the export of goods and services and household consumption, the DZS says.

On the other hand, the contribution of net external demand was negative.

Household consumption in Q4 grew by 4% compared to the same period of the year before, which is a faster growth than in Q3, when household consumption grew by 3.1%.

The export of goods and services grew in Q4 by 5.6% on the year, which is higher than the 5.1% growth recorded in the previous quarter.

The export of goods grew by 2.1% and the export of services jumped by 12.1%.

The import of goods and services rose by 0.1% on the year, much less than in the previous quarter, when it rose by 4.3%.

The import of goods rose by 0.8% while the import of services dropped by 3.1%.

In Q4, investments in fixed assets rose by 4% on the year, which is a decrease compared to a 5% increase in the previous quarter.

Government spending also grew in Q4, by 3.5% on the year, which is faster than in Q3, when government spending grew at a rate of 2.9%.

According to seasonally adjusted data, GDP in Q4 grew by 0.3% compared to the previous quarter while on the year it grew by 2.7%.

The GDP growth rate is higher than the EU average considering that Eurostat recently said that the EU economy in Q4 2019 grew by 1.2% on the year and by 0.1% on the quarter.

More economy news can be found in the Business section.

ZAGREB, February 24, 2020 - Croatia's Gross Domestic Product (GDP) reached €11,893 per capita in 2017, with only the City of Zagreb and three coastal counties surpassing the national average, data from the National Bureau of Statistics shows.

Zagreb's GDP per capita was three times as high as that of Virovitica-Podravina County, which was the lowest.

Expressed in the national currency, the kuna, Gross Domestic Product per capita in 2017 amounted to 88,726 kuna, which is a nominal growth rate of 5.4% compared with 2016, while the growth rate in euro is 6.4%.

Statistics also show that Croatia's Gross Domestic Product per capita was 61.7% of the EU28 average.

The highest GDP per capita in 2017 was recorded in the City of Zagreb, reaching €20,850, which is 75.3% above the national average. Zagreb was also the only administrative unit in Croatia which had a Gross Domestic Product per capita higher than the EU28 average, namely 8.2% above the average.

Only three other counties, notably those on the Adriatic coast, had a GDP above the Croatian average. Istria County's GDP per capita was €14,866, 25% above the national average, Primorje-Gorski Kotar County had a Gross Domestic Product per capita of €14,526, 22.1% above the national average, while Dubrovnik-Neretva County surpassed the national average by 5.7% with a Gross Domestic Product per capita of €12,575.

More news about economic growth can be found in the Business section.