This report reviews key macroeconomic data and microeconomic developments for Croatia published between May 6 and June 2, 2014.

The IMF downgraded its 2014 growth forecast for Croatia yet again in May, only a month after the previous downgrade. Under the latest estimates, the Fund now sees the economy contracting by 0.8% and not by just 0.6% this year.

The EBRD also released a gloomy forecast for Croatia, saying the GDP will contract 0.5% this year in the absence of any growth drivers. Back in January, the EBRD still believed the Croatian economy could expand by 1% this year and thus end a five-year recession period.

The flash estimate of the statistics office confirmed last month that the Jan-March GDP dropped by 0.4% y/y, signalling the recession is continuing for a sixth year in a row. Both the EBRD and the IMF now expect the recovery to begin only in 2015 once the external environment improves and thanks to Croatia’s EU funds absorption.
The government placed a EUR 1.25bn Eurobond at a yield of just over 4% in May and finance minister Boris Lalovac already voiced plans for another Eurobond in the second half of the year, if the investment climate is favourable, targeting financing for early 2015.

The central bank, on the other hand, released new data showing the combined first-quarter pre-tax profit of the banking system dropped 15% y/y to EUR 107mn.

The report also contains talks about the Jan-April EU funds absorption rate and the World Bank’s EUR 75mn loan for the Croatian health system.

It also provides information on the plans of the stocks exchanges in Zagreb, Sofia and Skopje to create a regional trading infrastructure, as well as on the government and the state pension funds’ plans to participate in Petrokemija’s capital hike. In May, French-led consortium MLZL started the construction of Zagreb airport’s new terminal, while Moody’s placed privately-held consortium Agrokor under review for a possible upgrade.

Key points:

• CPI dropped by 0.5% y/y in April following a 0.4% y/y decrease in March 2014. Retail sales rose 1.3% y/y in March after remaining flat in annual terms the previous month.

• The working-day adjusted industrial output recovered in January-April (up 1.3% y/y) after contracting in the prior nine months in a row on an annual level. It rose by 0.6% y/y in April alone, building up on the 0.7% y/y increase a month earlier.

• The unemployment rate continued to decline in monthly terms in April to 21.1% from 22.3% in March and 22.7% in February. It was also below the end-2013’s 21.6%. The average net monthly wage continued to recover in March, edging up by a real 0.1% y/y, after increasing 0.2% y/y in February.