This report reviews key macroeconomic data and microeconomic developments for Croatia published between July 5 and August 11, 2014.

Fitch downgraded Croatia’s ratings by one notch in early August, warning about increasing risks to the public debt-to-GDP ratio as the economy is continuing to contract, while the government again fails to exercise prudence in its fiscal dealings.

PM Zoran Milovanovic admitted that this year’s budget deficit will miss the target set by the EC and will end slightly higher. Moreover, the government will have to make another budget revision in September considering that the current performance of the tourism industry is not successful in yielding the planned results. Even though the number of tourists rose in the first seven months of the year, in July alone less travellers visited Croatia compared a year earlier due to the bad weather.

The central bank said it sees the national output shrinking 0.2% this year, which is somewhat more optimistic that the World Bank’s expectation for a 0.5% drop and the IMF’s forecast for a 0.8% contraction. Local economists believe the GDP will fall 0.7% in 2014.

The report provides details on Slovenia’s Nova Ljubljanska Banka deciding to shut down its Croatian operations, on the opening of bankruptcy proceedings at Nava Banka, and on Croatia’s application to use funds from EU’s solidarity fund to finance the floods recovery.

The report also contains information about the opening of an onshore hydrocarbons exploration tender, and Croatia’s plans to build an LNG terminal by 2020 via EU financing. It also speaks about the government’s plans to award motorway concessions, and about the latest events in the INA-MOL case and the Agrokor-Mercator deal.

Key points:

• CPI dropped by 0.4% y/y in June following a 0.2% y/y decrease in May 2014. Retail sales edged up 0.1% y/y in June after climbing 1.8% y/y in the previous month.

• The working-day adjusted industrial output recovered in January-June (up 0.7% y/y) after contracting in the prior nine months in a row on an annual level. It, however, dropped by 1.7% y/y in June alone, reversing the 1.2% y/y increase recorded a month earlier.

• The unemployment rate continued to decline in monthly terms in June to 18.3% from 19.66% in May, 21.1% in April and 22.3% in March. It was also below the end-2013’s 21.6%. The average net monthly wage fell by a real 1.3% y/y in May after rising by 0.9% y/y in April.