The ongoing coronavirus pandemic has been incredibly damaging to the European retail trade, with Croatia's economy being among the worst hit in the entire European Union (EU). While there were some 'good' aspects to come out of this, such as more Croats online shopping and turning to domestic produce, it's still very difficult to see the light at the end of the tunnel for many.

As Poslovni Dnevnik writes on the 7th of July, 2020, the growth of European retail trade was mostly driven by motor fuels on a monthly basis, given the fact that it recorded growth of almost 40 percent across the EU.

After the April decline in retail trade on European market, which stood at 11.4 percent on a monthly basis in the European Union and at 12.1 percent in the Eurozone itself, May finally brought some respite to the enfeebled industry brought to its knees by the negative consequences of the global coronavirus pandemic.

In that month, after easing the "lockdown" measures which were put into place to try to slow down the rate of infection which was sweeping the globe with a remarkable yet terrifying ease, the European retail market grew by an encouraging 16.4 percent when compared to the terrible results recorded during April, while in the Eurozone, it managed to reach 17.8 percent according to Eurostat.

However, on an annual basis, May could have actually been somewhat of a negative sign because compared to last year, there was an expected decline in that month, by 4.2 percent in the European Union, and by 5.1 percent in the area which uses the common European currency (Eurozone).

With encouraging retail growth of 21.4 percent in May, Croatia was among the countries with the highest growth, led by Luxembourg with 28.6 percent, followed by France with 25.6 percent and then by Austria with 23.3 percent growth.

As stated, the growth of the European retail trade was mostly driven by motor fuels on a monthly basis, given that this item in the recorded growth of almost 40 percent in the EU. Non-food products followed fuel with 30.2 percent growth.

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As Novac/Gordana Grgas writes on the 6th of July, 2020, carriers have begun laying off their bus drivers en masse, as was confirmed by the Voice of the Entrepreneurs/Glas Poduzetnika association, recalling a series of unsuccessful meetings and protests to solve the plethora of problems faced by this business in relation to tourism, which arose due to the coronavirus crisis.

Calls from some of them, from Dalmatia, through Istria, to Varazdin, confirmed that owners and directors, faced with a dramatic drop in revenue and huge financial obligations owing to bus leasing contracts, are writing or announcing business-related cancellations, and bus drivers are applying to the Croatian Employment Service or are already packing their suitcases to drive a truck overseas.

Government measures

Rovinj's Črnja Tours once had 131 bus drivers employed before the outbreak of the coronavirus epidemic, and on Friday they began with about 70 dismissals because, as they stated from the company's administration, they can't afford to keep their bus drivers without state support for the payment of their salaries.

"This time last year we could hardly find people [to work], as many as 30 of our bus drivers were from abroad, from Bosnia and Herzegovina and Serbia, but now we can no longer keep our workers. We'd hoped that the Government's measures would be extended for another three months, but they weren't. We submitted a request for June, but we haven't even received an answer for that yet,'' they state from Črnja Tours, which deals with both regular and tourist transport.

Liabilities to a leasing company, during the agreed moratorium, have been settled from the loans they took out with their commercial bank, and they have applied for HAMAG's liquidity loan and are waiting for a response.

Some buses had to be returned to various leasing houses.

"We sought a solution, we negotiated, we attended the protest held in Zagreb, but we didn't achieve anything and now it's all over, I have no more comments to make about it," said the director of the Solin-based company Delminium travel, Ivona Jukic. Three of that company's buses now run for Flixbus. Tourism is going poorly, excursions and congresses are being cancelled, and Ivona is preparing the arrival of tourists by plane from Scandinavia, but she has so far failed to get an answer to the question of who will have to pay the quarantine costs if one of those tourists gets infected.

Vinko Darojkovic, the director of the transport company Darojkovic from Brckovljani, says that his turnover has dropped by 98 percent, and from starting out with 38 employees, his company has remained with just 14 bus drivers since July the 1st, and he says "we will not stop there".

Last May, he illustrated, his company had a turnover of 3.9 million kuna, and this May they earned about 90 thousand kuna.

"We'll remain working but with only about 10 buses, but last year we had 28 of them. We checked them out and now they're standing in a car park, and the market price is falling. I don't know what we'll do with the payment of the lease because the leasing companies charged us high interest rates even during the moratorium,'' explained Darojkovic, adding that he currently owes around 600 thousand kuna. They expected help from the state, but nothing happened. They fired bus drivers, mechanics, cleaners... When asked what would happen to these people, he said: ''Bus drivers are a sought-after profession, some will drive trucks to Germany or Austria. The others just cry with us and go to the employment office,'' he replied. He asked for a liquidity loan and is still waiting for it.

Vincek from Jelkovac now has 270 employees, and at the beginning of the epidemic, about 70 bus drivers were fired. At the moment, they're not firing anyone, says director Kresimir Cumbrek, in June they had an income of around three million kuna, but last June their income was 11 million kuna and without state support things will only go downhill. "There will be a collapse in July, everyone will go in the direction of layoffs, especially in the case of smaller carriers who only have a few buses. I can't believe that the state has treated us like this,'' he noted.

One of the smaller carriers, Tomislav Kovac from Kastela, stated that he had to fire two workers. Now he is the only bus driver in his company For Travel, but he doesn't really have a job: since March the 8th, he has had one ride, for which he charged 7,000 kuna with VAT. In extremely stark contrast, last year, he had a monthly income in the tourist season of up to 180 thousand kuna.

For more on working in Croatia during the coronavirus crisis, follow our business page.

In these turbulent times dominated by the global coronavirus pandemic, it looks as if we'll need to wait until the warmer summer months pass before we know the true state of the Croatian hotel and investment market.

As Gordana Grgas/Novac writes on the 18th of June, 2020, for greater security, Valamar Riviera has reduced the capacity of its hotels for this season by 20 percent, they're not thinking of attracting guests by lowering prices but by offering additional services, and after the borders with Austria and Germany are opened, guests no longer have to be quarantined upon returning home.

Croatian hotels are managing to open their doors considerably earlier than what was initially planned, bookings are going better in Istria than they are in Croatia's southernmost city of Dubrovnik because Istria is a car destination. Camps are more full up than the hotels are, while among hotels - those of a higher category are doing better. The above briefly but accurately explains the situation in Croatia after the lockdown due to COVID- 19.

"We've prepared quite well and we have no intention of working with losses. We're opening our hotels with the dynamics that support it,'' Denis Prevolsek of Valamar Riviera notes. Most Croatian hoteliers have announced this year that they expect results at around 30 percent of what 2019's were.

What are the opportunities for the tourism and hotel industry in the years to come? Questions like this were asked at the Colliers virtual round table called ''Tourism 2020-2022: What to expect? What to hope for?'' which was held on Wednesday. The guest speaker was Dirk Bakker, the director of hotel services at Colliers International EMEA.

Hotels were generally an attractive target for investors before the coronavirus crisis struck, and this investment market was discussed, among others, by the member of the Management Board of the PBZ CO pension company Goran Kralj, which has invested a lot in tourism in recent years. He emphasised that the investment market will be very cautious until the situation around the business of hotel companies in 2020 is clarified, since those who are more heavily indebted will probably find it quite difficult to find their feet again.

"What autumn is going to look like is questionable, and the overall macroeconomic situation is important here. It will be interesting to see what the demand for accommodation will be in the next year, and what the implications in the end for tourism will be,'' said Kralj when referencing the Croatian hotel and investment market.

The lockdown will be followed by a year in which the business focus is on surviving and recovering from the coronavirus crisis, says Zagreb City Hotels CEO Josipa Jutt Ferlan, who manages Hilton hotels in the region, and whose biggest source of income is congresses and business travel. They opened three Hilton hotel facilities in the City of Zagreb, held training sessions for the local congress industry in the new epidemiological conditions and are already seeing results.

"We're rational with business and our costs, but we have to start somewhere. We can't wait for the ideal conditions because we don't know when they're going to come,'' she added. They have also acquired a license to operate Marriott hotels, so there are also expectations of that. Commenting on hotel prices for guests, it's a question of a cause-and-effect relationship between supply and demand, lowering price levels can't be the sole driver of the market.

Marina Franolic, regional manager of the international company BenchEvents, says that the autumn will show the real situation on the Croatian hotel and investment market. It will be quite difficult for everyone.

"This is an extremely good moment for new products and projects," said Marina Franolic, adding that the problem is that no one knows how long the situation with the coronavirus epidemic will last. As for hotels in Croatia, she believes that large, branded companies will be more successful because it will be easier to convince guests of their safety, while others will find that somewhat of a challenge. She also believes that there could be a separation between the ownership of hotels and their management, which she considers to be something which would lead in a very positive direction.

For more on the Croatian hotel and investment scene, follow our business page.

As Lucija Spiljak/Poslovni Dnevnik writes on the 13th of June, 2020, due to the ongoing coronavirus pandemic, a number of Croatian companies and employers have applied for government aid to preserve jobs in coronavirus-affected activities.

The aid, which comes as part of a special government measure, is intended for sectors whose business cannot be opened for objective reasons and for those which have experienced a (proven) decline of more than 50 percent, which relates to the terms of extended aid for June (it was previously intended solely for March, April and May, when it referred to a decline of more than 20 percent), given that the planned support was for three months - March in the amount of 3250 kuna and for April and May in the amount of 4000 kuna.

However, Croatian economic activity has been disrupted in the vast majority of industries, so the Croatian Employment Service's Board of Directors introduced a form of job preservation support for the month of June this year and amended the criteria for May 2020. For June, Croatian companies and other beneficiaries must submit a new application via the online application by June the 30th, although they'll have already used the aid, and the amount of the subsidy will be 4000 kuna.

According to the CES, the deadline for the payment of this support is the 20th of the month for the previous month, and in the case of Croatian employers having hired new employees in the meantime, no further government support can be requested for them.

According to the data received from the CES, by June the 6th this year, more than two billion kuna in support had been paid out for 98,432 employers and 526,876 workers in April. However, many Croatian companies complained that the requested funds, which were granted to them, arrived late, and out of a total of 113,396 received applications for support, a total of 6508 applications were rejected by the same date throughout the whole of Croatia.

The reason for the refusal is listed as the non-compliance with the defined conditions and criteria.

"Although the deadline for the payment of support to beneficiaries for the previous month is the 15th of the month, due to the large amount of data and delays in submitting documentation in some cases, the control process takes longer than what was originally planned and therefore the payments are arriving more slowly than we expected. Namely, given that the condition for the continuation of the payment of support is the delivery of proof of payment of employee salaries for the previous month for all workers for whom the support was paid out, the Institute conducts detailed controls by matching data with the Croatian Pension Insurance Institute and the Tax Administration,'' they claim from the CES.

To briefly recall, the target groups of Croatian companies and employers eligible for the payment of this support are employers in the sectors of agriculture, forestry and fisheries, transport and storage, accommodation and food and beverage service activities, administrative and support service activities, organisers of various public events and ancillary activities such as companies who deal with equipment rental, audio and video recording, ticket sales, hall rental, along with other companies that generate most of their revenue from events and public gatherings.

The CES also lists Croatian companies, crafts, family farms and natural persons who are independent contractors and self employed individuals as eligible business entities. The CES also reports that they are continuously monitoring the situation on the domestic labour market along with the Ministry of Labour, on the basis of which the need to extend the implementation of this particular economic measure will be further considered.

Given the fact that Croatian companies have stabilised their operations with the easing of the formerly stringent anti-epidemic measures, some have decided to repay the financial aid they received from the government for three months - 973 Croatian companies have made that choice.

There is a brewing problem among Croatian companies and employers who have applied for benefits, had them granted, but have not paid their employees their salaries.

The list from the Tax Administration includes a total of 1237 Croatian companies/employers - of which 1185 are legal entities and the rest of 53 are obrtnici (owners of crafts), who haven't paid out employee salaries for a total of 2310 workers they employ.

This concerning data on the literal non-payment of wages is based on submitted JOPPD forms in which employers reported the non-payment of wages for the period from January to March this year. The first list of non-payers of salaries was published by the Tax Administration way back on July the 15th, 2014, and it included 5,619 legal entities that hadn't paid salaries to 19,449 workers during the first quarter of 2014.

The conclusion is that since 2014, since the lists of non-payers were published, the number of non-payers has decreased by almost five times, and the number of non-payers for only one worker (probably the owner of the entity paying themselves) has increased. Worryingly, tsix activities that are on the list of non-payers are also in the top eleven activities that received the largest payments of government aid for the month of March.

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As Novac writes on the 12th of June, 2020, when panic broke out over the outbreak of the coronavirus pandemic, the Croatian Government and more specifically the Minister of Finance found themselves in the most difficult situation imaginable: an incalculable abyss opened up in the budget and in just a few days, the good fiscal results that had been worked on for years were quite simply kicked to the dust and erased by the consequences of the virus.

However, if we can even dare to begin talking about a V-shaped recovery at this moment in time, then the closest to it is fiscal policy. Minister Zdravko Maric first reported that revenues in May were about 50 percent lower than they were during the same month last year, which is an enormous and concerning drop, but it was still much smaller than what was originally expected - a drop of up to 70 percent was expected. Further improvement is expected in June. Then came the positive reports from various credit rating agencies, and finally, very successful borrowing on the international capital market began.

On Wednesday, the finance ministry issued two billion euros worth of bonds for a period of eleven years and an interest rate of 1.5 percent (a yield of 1,643 percent), which is "as much as 45 basis points lower than the initially announced price."

The interest of the investment community, they say from the Ministry of Finance, "was exceptional", about 400 investors came forward, including those who invest exclusively in investment credit rating bonds. Their demand was 8.45 billion euros, about 4.2 times the nominal amount of the issue.

Financial analyst Andrej Grubisic says that Minister Maric is just doing his job, and he expects nothing but good results from him because he has been in the Ministry of Finance for years "and belongs to the category of the best to have done that job".

Although he doesn't dispute his expertise and the results achieved by the Croatian Government, and once again with an emphasis precisely on Zdravko Maric, he points out that the circumstances also helped him out a little. This, above all, refers to the large inflow of money which results in low interest rates. However, it also carries a certain danger that a large amount of money in circulation will raise inflation.

The Ministry of Finance plans to use this borrowed money to refinance the 1.25 billion US dollar bond, which matures in mid-July this year and was issued back in 2010 at a price of 6.625 percent. This also means that the new indebtedness brings budget savings of around 360 million kuna for the Croatian Government. The remaining 750 million US dollars, according to the Treasury, "will be used to fund measures to help the economy affected by the coronavirus pandemic, as envisaged in the amendments to the state budget for this year."

With the latest borrowing on the international market, the Ministry of Finance has largely solved this year's financial needs of the budget, which, due to the coronavirus pandemic, increased from 30.5 billion kuna to a massive 63.4 billion kuna. With the budget revision back in May, the Croatian Government has significantly reduced expected budget revenues this year (by around fifteen per cent) and it expects a general government deficit of 6.8 percent of GDP, after last year’s surplus of 0.4 percent.

Agencies that have assessed Croatia's creditworthiness in recent weeks expect that the situation could return to the much talked about Maastricht framework as soon as next year, with a budget deficit of 2.7 percent of GDP. As a positive aspect of the fiscal situation, Fitch states that the needs for the financing of the budget in the medium term are moderate, given that the extended maturity of bonds is close to six years, and it assesses that "debt management is prudent".

An additional mitigating circumstance in the coming years should be favourable financing conditions and less need for borrowing on the market, as Croatia could become one of the biggest winners of the European aid programme, which regards around 10 billion euros in the period from 2021 to 2027, with 7.3 billion euros set aside for grants.

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Could June bring the reactivation of at least part of the enfeebled Croatian economy with it, along with some warm weather? Statistics, although cold, provide a glimmer of hope.

As Novac writes on the 12th of June, 2020, the seven-year recovery period for the European Union's labour market has been abruptly stopped in its tracks by the economic turmoil caused by the coronavirus pandemic, and unemployment has risen in almost all member states.

The seasonally adjusted unemployment rate for most EU27 members rose back in March, but at the level of the EU27 average itself, it remained the same as in the previous month (6.4 percent), which was also the lowest rate in twelve entire years. The unemployment rate continued to fall and was 98,000 lower in March than it was in February.

In April, the disruption was stronger due to the month-long economic ''closure'' of almost all EU member states, and the total number of unemployed people rose by 398,000 to a concerning 14.1 million. The unemployment rate rose in all member states except Italy and Denmark, which resulted in an increase in the rate at the EU27's level to 6.6 percent.

However, compared to the same month last year, both the number of unemployed people and the unemployment rate across the EU27 remained lower than it was in April, although only a few member states had a lower rate - Denmark, Poland, Portugal and Finland.

The highest rate decline was recorded in Italy (by 3.9 percentage points), which had a strong impact on the EU27 average. However, the decline in the unemployment rate in Italy was based on a sharp decline in the participation rate, rather than on employment growth itself. Namely, Italy, due to its sheer size, significantly affects the EU average. The unemployment rate there fell in both March and April, but with a simultaneous reduction in the number of employees and a sharp decline in labour market participation by more than three percentage points.

The drop in the participation rate is a result of the fact that a significant number of people postponed active job searches due to the terrible Italian epidemiological situation, so they were recorded as inactive during these two crisis months and not actually as unemployed, which means that unemployment growth was probably postponed a little.

According to these Eurostat statistics, Croatia was the third largest member state when it comes to the highest employment growth during the first quarter, but it was also among the member states in which the seasonally adjusted unemployment rate rose in March, it was also among those where it rose sharply in March and April (in March by 0.6 percentage points, and in April by 1.3 percentage points).

Thus, the Croatian economy managed to gain a slightly worse position in the EU27 during the crisis months of March and April - in April it had the seventh highest rate, while just before the start of the pandemic (in February) it had the tenth highest rate in the EU27. As such, it moved away from the EU27 average, to which it was very close last year and at the beginning of this year.

Although the positive developments on the EU's labour market were interrupted in these extraordinary circumstances caused by the ongoing coronavirus pandemic, this increase in unemployment in the most critical months so far was actually below expectations. Namely, it can be concluded that the measures taken by EU member states, which were mostly mostly focused on job retention, significantly mitigated the growth of unemployment.

Namely, the unemployment rate was expected to exceed 8 percent in April, and it was still kept at a lower level of 6.6 percent (although this was partly a reflection of the decrease in labour market participation, which affected the decrease in the number of registered unemployed people).

At the same time, when labour market developments across the EU are compared with those across the Atlantic in the US, a huge difference can be easily seen, which can still be attributed to the effects of the measures taken by countries since March.

Across the pond in the USA, which didn't focus its measures on preserving jobs, the unemployment rate rose by 0.9 percentage points in March, and by a shocking 10.3 percentage points in April, to the highest level (14.7 percent) since the devastating Great Depression. However, positive changes were visible in May, with the rate falling to 13.3 percent, the number of unemployed decreased by more than 2 million (to 20.98 million), and the number of employees increased by 3.8 million (to 137.2 million).

Administrative data on unemployment in Croatia currently shows a good short-term trend given the dire circumstances. Namely, the number of unemployed people on June the 10th, 2020, stood at 153,467, which was 4,372 less than at the end of May and 5,767 less than at the end of April.

As the trends changed after the introduction of the wage subsidy of 4,000 kuna, it should be expected that unemployment will move until the implementation of the government-introduced measures comes to an end.

Data for the first ten days of June provide a much needed glimmer of hope that the reactivation of the Croatian economy may come more quickly than was previously expected, because in those ten days of June - 8,842 people from the Croatian Employment Service's records were stated as being employed (mostly in tourism, trade and manufacturing), which is at the level of 89 percent of employees throughout May.

Since Croatia has already opened its borders to its most important emitting tourist markets, and Germany and Austria are expected to lift their respective travel restrictions from the 15th of June, it would be fair to expect this to have an immediate positive impact on Croatian tourism and then indirectly on the Croatian economy and as such, on the labour market.

For more on the Croatian economy, follow our business page.

As Novac writes on the 6th of June, 2020, Fitch has reaffirmed the long-term Croatian credit rating of 'BBB-' with a stable outlook.

"The stable outlook reflects confidence in the government that medium-term fiscal stability will be maintained while short-term measures are taken for economic recovery in regard to the effects of the coronavirus epidemic, as well as the continuation of the gradual euro changeover process," Fitch said.

Fitch forecasts a decline in Croatia's GDP of 8.4 percent in 2020, which is more optimistic than the government's own estimate (which stood at a concerning 9.4 percent), primarily due to the major consequences of the ongoing coronavirus pandemic on tourism, Croatia's strongest economic branch. The new forecast is that Croatian tourism will fall by 70 percent (compared to 50 percent, as was previously assumed).

"Recent economic data points to a dramatic deterioration in economic activity (GDP fell 1.4 percent in the first quarter, while retail sales fell a record 22 percent in April and unemployment jumped to 9.4 percent). Sentiment indicators point to recovery in May, in line with mitigation of the previously stringent anti-epidemic measures put in place to try to slow down the coronavirus infection rate. Other risks will remain as they are in the short and medium term, including the extent and length of the pandemic, recovery in external demand, the potential impact of suspension measures and adverse demographics, Fitch explains.

As for Croatia's desire to join the Eurozone, Fitch writes that Croatia is close to completing the requirements for simultaneous entry into ERMII, a sort of proverbial waiting room countries enter into before adopting the euro as its official currently, as well as the Banking Union.

"In May, the government approved a law reducing non-tax and parafiscal costs, meeting all structural commitments agreed with their European partners. The ECB also conducted its comprehensive assessment and the results will be published in June. If the ECB's results are positive, Croatia is likely to seek entry into the ERMII/Banking Union in the third quarter of 2020,'' they state.

For more on the Croatian credit rating and economy, click here.

Croatian Finance Minister Maric has sought to assure the public in saying that Croatia's recovery from the current economic crisis we're embroiled in, induced by the coronavirus pandemic, won't be as difficult to come out of the other side of as the one which occurred back in 2008 was.

Everyone likely remembers the financial crash of 2008 and the tremendous economic consequences that followed. Many countries, particularly those with less economic strength in general struggled to make a comeback and get back on their feet after that event, and the Republic of Croatia is among those who were dealt a particularly harsh blow from which recovery took a long time.

As Poslovni Dnevnik writes on the 3rd of June, 2020 inance Minister Zdravko Maric recently stated that pensions would be paid by the time Corpus Christi rolls around, As for fiscalised receipts for the month of April, known as Croatia's lockdown month, they are in the red by 40 percent, and in May there was significant recovery as the anti-epidemic measures were loosened, seeing them stand at somewhere around 18 percent in the red.

"When lockdown started, we said that the month of May might be more challenging. From the 1st to the 31st of May, the tax revenue index stood at 48.7 which is a drop of over 50 percent when compared to middle of last year's tax levies.

It should be noted that the weekend in May was the end of the month. The numbers are better though, though I won’t try to embellish anything here either. Last year, the 31st fell on a Friday and this year the 31st fell on a Sunday, so we had two less working/business days to work with. When we include and add to the above figures what we were working with on Monday, then the tax revenue index is at the level of 60, so the decline stands at about 40 percent. Our recovery from this crisis will not be as difficult as the recovery we experienced back in 2008," Minister Maric stated.

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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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As Poslovni Dnevnik writes on the 31st of May, 2020, the Croatian Employment Service (CES/HZZ) has published the conditions for the receiving of Croatian Government support for job preservation for June on its website.

Here's a list of what's changing and an explanation of who can obtain Croatian Government support next month. The support for June will continue to amount to 4,000.00 kuna per full-time employee/worker.

The CES will receive applications in the period from June the 8th to June the 30th, 2020, and the support can be provided by employers from the following sectors:

Agriculture, forestry and fishing - only crop and livestock production, hunting and related service activities, as well as fishing.

Transport and storage - primarily passenger transport (rail, land, air and water).

Accommodation and food and beverage service activities.

Administrative and support service activities - only rental and leasing activities, as well as travel agencies, tour operators and other reservation services and related activities.

The arts, entertainment and recreation - only creative, artistic and entertaining activities, entertainment and recreational activities and the production and showing of films, sound recording and music publishing activities and their distribution.

Other service activities - the repair of computers and personal and household goods and other personal service activities.

Organisers of cultural, business and sports events, organisers of fairs and weddings, and related activities such as companies for equipment rental, audio and video recording, ticket sales, hall rental and other companies that generate most of their income from events and public gatherings.

Eligible employers: companies, crafts, family farms and self-employed natural persons.

What is the application criteria for Croatian Government support in June?

The criteria for Croatian Government support in June is as follows:

An employer wishing to use the support must prove that in May 2020 he had a decrease in income of at least 50 percent when compared to May 2019, based on the submission of submitted VAT forms for 05/2020 and 05/2019 to the Tax Administration.

If the employer has been operating for less than one year, it is necessary to prove a decrease in turnover by at least 50% percent in May 2020 compared to February 2020 based on the submitted VAT forms for 05/2020 and 02/2020 to the Tax Administration.

For employers who are eligible for support for fifty or more employees for May, the criteria has been supplemented. According to the amendments to this group of employers, the conditions for receiving support for May have been tightened up and can be found in more detail here.

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