July the 7th, 2021 - The Croatian private accommodation sector is slowly but surely recovering from the horrific blow the ongoing coronavirus pandemic and the travel restrictions dealt it. That being said, there's an extremely long way to go yet.

As Poslovni Dnevnik/Jadranka Dozan writes, among the many economic indicators that signal a solid pace of economic recovery, the most recent picture is provided by the weekly updates of fiscalisation data.

The latest data from the Tax Administration claims that last week, the value of receipts issued across all activities within the fiscalisation system stood at 19 percent higher than in the same week last year, two percent behind the comparable week of pre-pandemic 2019.

The latest figures clearly reflect the approach of the peak tourist season. Namely, in the week of the transition from June to July this year, 54 percent more receipts were reported in the tourism and hospitality industry than were reported last year. As such, when it comes to these activities, 804 million kuna of weekly turnover was reported through fiscalisation, but compared to pre-crisis 2019, that figure is still 15 percent less.

In order to get a better picture of the impact of the pandemic, the Tax Administration also offers comparisons of fiscalised turnover for the period since last year's outbreak in Croatia.

They point out that from the end of February to the end of last week, the total fiscalised turnover was 22 percent or 12 billion kuna higher than it was back during the same period last year, and two percent lower than the year before.

However, while in trade the pre-trial traffic was exceeded by four percent, in tourism and catering, the value of receipts issued in the observed more than four months is still lower by about 40 percent.

What do things look like in terms of the recovery of fiscalised turnover when we look more closely at individual activities at the level of the first half of the year?

For example, in the first six months of 2021, 1.74 billion kuna in cash turnover was recorded by the Croatian private accommodation sector (which, in addition to payments with banknotes, includes cards, cheques, etc) which is 700 million kuna more than last year, but quite far from 3.32 billion kuna from the first half of 2019. Cafes and restaurants issued invoices worth 3.75 billion kuna in the first half of the year, which has not yet caught up with 2020's realisation with slightly less than 4 billion kuna in fiscalised turnover, and the gap in relation to the semi-annual turnover from pre-pandemic 2019 stands at more than 2.9 billion kuna in total.

Among the activities that are still well behind the pre-crisis levels of activity is the category of Arts, Entertainment and Recreation, in which, after last year's 250 million kuna, the value of issued receipts recovered a litte, reaching 313 million kuna, but it is still 38 percent less than the 502 million kuna recorded in the comparable period of the last pre-crisis year of 2019.

The same applies to activities in the category of Transport and storage. After the growing cycle in 2019 resulted in more than 1.3 billion kuna in annual fiscalised turnover, last year, enterprises from these activities reported less than 770 million kuna, and the beginning of recovery this year was reflected in an increase in the value of invoices issued to 843 million kuna. Entrepreneurial niches related to tourism and travel generally fared worse than others, which shouldn't come as a particular surprise to most.

According to the NCEA, a part of these enterprises is classified in Administrative and support service activities in which fiscalised turnover is still more than half lower than in the pre-pandemic area. In the first half of the year, they reported less than 290 million kuna, or slightly less than last year's 300 kuna, while the year before, 884 million kuna in turnover was fiscalised in these activities.

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ZAGREB, 17 June 2021 - Croatia ranks 59th on the latest IMD World Competitiveness Ranking that covers 64  economies in the world.

The IMD World Competitiveness Ranking measures the capacity and readiness of economies to manage their competencies to achieve long-term growth, generate jobs and increase welfare.

This year, Croatia has moved upward by one place after, in 2020, the ranking covered 63 economies.

In the last five years, Croatia's annual positions on this ranking ranged between 59th and 61st place.

The latest ranking from the Lausanne-based IMD World Competitiveness Center (WCC) positions Switzerland and Sweden in the first and second place respectively.

The ranking is based on 334 criteria, of which two-thirds are statistical data, and one-third are based on the opinion of businesspeople polled for this purpose.

Considering 20 competitiveness indices, Croatia fares well in international trade (29th place), price level, health and environment, and education.

Croatia, for instance, fares poorly in management practices, labor market, business legislation, and some other criteria.

In comparison to all the EU members, Croatia is at the lowest position.

The president of the National Competitiveness Council, Ivica Mudrinić was quoted as saying that the EU funding available to Croatia could help the country to speed up highly-anticipated structural reforms.

For more about business in Croatia, follow TCN's dedicated page.

ZAGREB, 11 February, 2021 - Croatia's Gross Domestic Product is estimated to have contracted by 8.9% in 2020, while it is expected to rise at a rate of 5.3% in 2021 and 4.6% in 2022, the European Commission says in its latest Winter 2021 Economic Forecast, published on Thursday.

The economy's contraction in 2020 "is mainly attributable to the impact of the COVID-19 pandemic on service exports, particularly tourism, which suffered greatly due to the fall in demand for air travel and the imposition of travel restrictions in many countries."

Croatia's private consumption also fell, reflecting the accumulation of involuntary and precautionary savings.

Following a better-than-expected third quarter, the country's GDP is estimated to have contracted again towards the end of the year as pandemic suppression measures were reintroduced in December.

This contraction is lower than the previous projections of -9.6%, as stated by the EC in its Autumn Economic Forecast. However, the latest forecasts about the rise in 2021 are smaller in comparison to the previously projected recovery at a rate of 5.7%, while the projected growth for 2022 has been revised upward from 3.7% to 4.6%.

"Real GDP is forecast to bounce back by 5.3% in 2021, as domestic demand should rebound once pandemic containment measures are phased out and more people are vaccinated.," the EC says.

"Pent-up demand, coupled with a gradual recovery in the labour market, is expected to boost private consumption. Investment should rebound on the back of the already strong dynamics in the construction sector, supported by rebuilding efforts following the strong earthquakes in the Banija region and Zagreb.

"A gradual pick up in longer-term investment projects, is also expected. The recovery in external demand, however, is expected to be uneven. Goods exports are expected to increase strongly on the back of the improved global outlook but services exports are projected to remain subdued in both 2021 and 2022 compared to their 2019 levels.

"This is mainly because the recovery in the travel and hospitality sectors are likely to take several years. This forecast does not include any measures expected to be funded under the Recovery and Resilience Facility, posing an upside risk to the growth projections.

"HICP inflation rate dropped to 0% in 2020 on the back of a strong decline in energy prices, while core inflation remained broadly stable at around 1%. As the effect of last year’s fall in oil prices dissipates, inflation is expected to pick up slightly in 2021 but should remain subdued throughout the forecast horizon (1.2% in 2021 and 1.5% in 2022)," reads the Croatia section of the EC Winter Economic Forecast.

Croatia ranks 3rd in terms of expected rise in 2021, fourth in terms of fall in 2020

For the sake of comparison, Spain is expected to have the most robust recovery in 2021, at  a rate of 5.6%, France follows (5.5%), and Croatia ranks third among the 27 EU member-states.

When it comes to the economic downturn in 2020, Spain again tops the ranking (-11%), Greece is  the runner-up (-10%), and Malta ranks third (-9%), while Croatia comes as fourth with a negative growth rate of 8.9%.

As Novac/Veljko Ostojic writes on the 8th of April, 2019, after almost a decade of high growth rates in Croatia's domestic tourism indicators, the dominant feature of this season, at least from the market's point of view, is uncertainty. The only thing we can be sure of, however, is the rapid growth period behind us. Facing Croatia is a period of struggle for each tourist owing to extremely turbulent broadcasting markets.

Such a destiny is shared by all Mediterranean markets with the exception of Turkey, and tourism in the Mediterranean as a whole is influenced by two dominant trends.

The first concerns the general insecurity in the European Union's economy, driven by the slowdown in individual national economies, primarily in big players such as Germany and Italy. An additional element that generates general uncertainty is the potential of Brexit (should it ever happen at all), the real effects of which at this stage can't really be estimated. These movements deter people from spending too much money, which is felt by the lack of bookings and reservations. In the first two months of 2019, the annual cumulative booking from Germany to Croatia was a little less when compared to 2018, while the decline in British tourist reservations throughout the Mediterranean was much more apparent, with Brits booking their holidays in the sun in advance being 10 percent lower on average than last year.

The second trend is the return of an old tourism king, Turkey, which has been a source of discomfort and nerves for Western Mediterranean countries, especially Spain, especially with its policy of subsidised travel arrangements last season, this season, Turkey is set to continue to record high growth rates of reservations from key European emission markets.

Such is an environment that defines the prospects of Croatian tourism not only this year, but over the next few years. The Croatian Tourism Association decided to quantify the effects of these trends on the expectations of Croatian tourist companies and the results of that survey were published in the first issue of Tourism Impulse, which will be published continuously every quarter. They surveyed the fifteen of Croatia's largest tourism companies, which account for 81 percent of the country's hotel sector.

The survey has shown that Croatian travel companies are experiencing revenue declines on one hand, and rising costs, primarily regarding labour, on the other. Croatian tourist companies are expecting slower annual revenue growth by 11.4 percent when compared to last year. Without changing the business environment in which Croatian tourism operates, this will result in a reduction in profitability and of course, a reduction in investment potential. With Croatia's damning reputation among foreign investors on the world stage, this really is the last thing it needs to seek to encourage.

The rather damp expectations of some of Croatia's largest tourist companies also show a drop in profitability this year by almost five percent and, as a consequence, the reduction of investments this year by a concerning twenty percent. Over the next two years, a further decline in investment is expected at a rate of 33 percent when compared to the periods in 2018 and 2019.

Reducing investment potential in tourism has a significant impact on the long-term prospects of Croatia's tourism. It is clear to all that in the long-term, Croatia must compete exclusively with quality rather than price. Reducing prices as much as possible to compete with Turkey on a surface level will only destroy the Croatian coast and Croatia's tourism sector as a whole. This isn't an option.

To be able to really compete with quality, apart from having determination to do so, it is crucial to attract and stimulate investments, something Croatia lacks in, and rather severely.

For that, Croatia will have to make numerous significant changes to its business framework. Today, Croatia is one of the least competitive in investing in tourism in the entire Mediterranean and has the highest tax burden of them all, especially if we look at the VAT rate. Spain, France and Italy have a reduced their VAT rates to help boost tourism. Croatias VAT rate, however, is 13 percent for hotel accommodation and 25 percent for hospitality services. Only Denmark is operating anywhere close to that in the whole of Europe, and one can hardly compare Croatia to Denmark.

Tourism directly and indirectly generates nearly twenty percent of Croatia's GDP, the sector generated eleven percent of all investments in Croatia. There is a lot of discussion about the optimal structure of the economy in which tourism makes up such a big part of it, and this, like many such discussions in Croatia, is often a waste of time. In a situation where tourism is experiencing significant growth rates and becoming an increasingly important factor in the receptive Mediterranean market, such discussions are quite unnecessary.

Of course, the priority requirement for Croatia's tourism growth is to boost investment, which will continually increase the country's overall quality.

If VAT on the entire tourist service is reduced to the level of Croatia's competitive countries, tourism can attract an additional three billion euros of investment, it can increase employee salaries by twenty percent and continue to rise over the next few years, which will further stabilise budget revenues and raise the standard life in Croatia in general.

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