Our comprehensive assessment of Croatia's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Croatia, as well as the latest industry developments that could impact Croatia's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Croatia before your competitors.

Country Risk

Croatia Country Risk

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Core Views

  • Croatia's economy will continue along a low growth trajectory over the next few quarters, and may even remain in recession for a seventh consecutive year in 2015.

  • We believe Croatia will eventually need an EU/IMF loan arrangement to help cover its budget deficit and implement much needed structural reforms. However, this is unlikely to happen until at least 2016.

  • Croatia's trade deficit will begin expanding amidst weak exports and a slight recovery in domestic demand. This will ensure that the current account surplus begins shrinking over the coming years.

  • Inflationary pressures will remain weak in Croatia. The central bank will remain focused on kuna stability to anchor inflation expectations and protect the country's large FX loan liability.

  • Croatia's dire...

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Croatia Operational Risk Coverage (9)

Croatia Operational Risk

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Croatia offers moderate risks to incoming investors with regards to the labour market. The main risks stem from the large informal economy, high minimum wage, strong trade unions and labour courts, and a rigid and overregulated Employment Protection Legislation. However, the labour force has a high level of basic skills and is making strong progress in terms of primary education service delivery. Croatia's overall score of 55.1 out of 100 for Labour Market Risk places the country on 18th position regionally out of 29, between Romania and Lithuania. 

Education levels in Croatia are generally high. This is mainly due to the high percentage of Croatia's students entering primary school continuing their education to the secondary level (83.1%), and even the tertiary level (21.6%), with a lot of government spending allocated to higher levels of education. On a less positive note, learning is very rigid and facts-focused in Croatia, which hampers...

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Croatia Crime & Security

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Croatia is generally a safe place for foreign workers, expatriates and tourists, with only a residual threat of crime, and a virtually non-existent risk of terrorism and interstate conflict. In addition, security services in Croatia are well-trained and equipped, and respond effectively to call-outs. Nevertheless, standard precautions vis-a-vis personal safety should be observed throughout the country.

The greatest risks for investors and foreign businesses in our Crime and Security Index relate to criminal risks in Croatia. Overall crime rates are low with an average of 477 crimes per 100,000 inhabitants. Crime rates have been steadily decreasing in recent years, especially with regards to assault and murder, but business-related crime, such as (in order of prevalence) fraud by outsiders (16.7%), burglary (6.8%), vandalism (5.1%), extortion (0.7%) and motor vehicle theft (0.4%), is more prevalent in Croatia than the average in the Western...

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Croatia Labour Market

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Croatia's mediocre performance in BMI's Labour Market Risk Index is mainly due to the limited size of the labour force, high unemployment, low female participation rate, large informal economy, overqualification and skills mismatches of graduates for the job market, elevated labour costs due to a high minimum wage in the region, strong trade unions and labour courts, and a rigid and overregulated Employment Protection Legislation. Croatia's overall score of 55.1 out of 100 for Labour Market Risk places the country on 20th position regionally out of 30.

The Availability Of Labour in Croatia is below the regional average at 24 th position, with a score of 50.1 out of 100 in BMI's Labour Market Risk Index, because of the small size of the labour force (diminished during the 1990s war), the low female participation rate and urbanisation of the population and a large share of the informal...

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Croatia Logistics

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Despite heavy damage to the transport sector during the civil war, Croatia offers one of the best transport networks in the Emerging Europe region. This is due to intensive investment, with the help of global financial institutions, in the country's road, rail, maritime port and airport infrastructure after the conflict. Croatia's performs strongly in our Logistics Risk Index with a score of 57.0 out of 100, placing 7th in the region, substantially above of neighbours Serbia and Bosnia.

The quality of Croatia's roads is very strong, and offers commensurate regional linkages with neighbouring countries. This is a requisite for Croatia though, given that it relies on the road network to meet the bulk of its supply chain needs. Nevertheless, a ranking of second in Emerging Europe behind regional leader Cyprus is evidence of its robust road network. Croatia's railway coverage is also strong, comparable to a developed nation like Norway and...

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Croatia Trade & Investment

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Businesses and investors stand to benefit from the high level of economic openness to foreign direct investment in Croatia, due to pro-investment reforms of the regulatory framework, which aims to treat foreign and domestic investors equally, though there is some indirect discrimination against foreign investors. Croatia's financial markets are better than in other countries in the region, such as Bosnia, although Croatia's capital markets are suffering from a lack of liquidity. However, Croatia has excellent access to international markets, thus offering an alternative market place for trading securities. Legal Risks in Croatia are also sizable due to increased government efforts to crack down on corruption in recent years in the lead-up to the country's EU accession.

Nevertheless, the rule of law and corruption are sub-optimal and require further work, especially in the area of intellectual property protection, which is weak in practice due...

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Croatia Industry Coverage (17)

Autos

Croatia Autos

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It appears as though 2013 will have proved another disappointing year for Croatian new passenger car sales, which were down by 15% as of end-October 2013, at just 24,158 units, according to figures released by local market research company Promocija Plus.

However, it appears to be a different story for light commercial vehicle (LCV) sales, which stood at 3,712 units as of end-September 2013, according to figures from Promocija Plus, cited by the CE Auto website in October 2013. On current sales trends, this would imply a total of around 4,950 LCVs sold in Croatia over 2013, which would represent growth of some 36.4% on 2012 sales figures.

Passenger car sales for the month of October 2013 were actually up by 10.0% y-o-y, at 2,194 units. This gives BMI some hope that the country may be able to stem the sales decline slightly from the 15.0% contraction as of end-October 2013. We are therefore...

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Commercial Banking

Croatia Commercial Banking

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...
Commercial Banking Sector Indicators 
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Croatia Consumer Electronics

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BMI View:   D evelopment of Croatia's consumer electronics market has been overshadowed   by the challenging economic environment in the country, which has seen GDP contract in real terms between 2010 and 2013. Declining consumption, high unemployment, currency depreciation and fiscal austerity continue to squeeze demand for devices, countering the positive impact of some technology trends such as adoption of smartphones, tablets and smart TVs. BMI believes big-ticket items such as TVs and PCs remain hardest hit by the economic challenges fac ing Croatia, leaving the handset market as the...

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Defence & Security

Croatia Defence & Security

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BMI's Croatia Defence & Security Report examines the military and security dynamics of this Balkan nation. The report provides a comprehensive overview of the security challenges faced by Croatia, now and in the future. Several aspects of Croatia's defence and security posture are examined, including its defence procurement processes, military posture and strategic risks. The report suggests that despite the current financial challenges faced by the country, Croatia is broadly continuing on a path of military modernisation.

Croatia will spend USD794.8mn on defence in 2014, rising to USD797.4 in 2015, according to our calculations. On average, the country has spent USD890.8mn annually between 2011 and 2013. During this period, the country's defence budget has steadily declined. This reduction in spending has occurred as the result of a general contraction in the Croatian economy. For the rest of the forecast period, we expect Croatia to...

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Food & Drink

Croatia Food & Drink

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BMI View:   Croatia's economy will stagnate in 2015 and 2016. Real GDP growth will lag behind the rest of the EU, as domestic demand is constrained by a lack of progress tackling competitiveness issues. Private consumption will drag on real GDP growth over the coming quarters. Unemployment is high (around 20%), wage growth is anaemic and households have made only limited progress on deleveraging. This implies that household disposable incomes will remain under pressure for some time , constraining consumer confidence and spending.

Headline Industry Data (local currency)

  • Total food consumption growth in 2014: +1.3% year-on-year (y-o-y); compound annual growth rate (CAGR) to 2018: +2.4%.

  • Per capita food consumption growth in 2014: +...

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Freight Transport

Croatia Freight Transport

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Following a year in which BMI believes saw increasing volumes across all Romania's freight transport modes, 2014 will signal further growth in line with slowly improving macroeconomic outlook.

Total trade is projected to slow its decline in real terms, with our Country Risk desk forecasting a y-o-y decrease of 0.83% in 2014 following an estimated decline by 1.15% in 2013.

Road freight is to continue to dominate the sector and is projected to grow by 3% in 2014. The sector did not manage to defy the downturn, with volumes plummeting in 2009-2012, and is struggling to recover.

BMI notes two of the Croatian state-owned transport companies - HZ Cargo and Croatia Airlines - are currently at the different stages of privatisation.

Headline Industry Data

  • 2014 Air freight tonnage is expected to grow by...

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Information Technology

Croatia Information Technology

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BMI View: Croatia's entrance into the EU was completed in July 2013, and this should be a key driver of ICT growth, facilitating increased trade between European markets . Over the next five years, the process of EU convergence, which still has far to go, will drive spending on IT projects. Funds such as the EU Cohesion fund are already providing funding for IT projects related to modernisation initiatives in both public and business segments. However, a modest recovery in private consumption will be insufficient to drive a significant economic recovery in Croatia in 2014, with fiscal consolidation and weak investment spending set to weigh on headline growth at just 0.6% in 2014. As the government remains the major investor in ICT in Croatia, our IT...

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Infrastructure

Croatia Infrastructure

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BMI View: The infrastructure sector dominates Croatia's construction industry and growth has outperformed the residential and non-residential segment according to the latest official data. T he government's pledge to inject EUR13bn into the country's infrastructure sector and Croatia's accession to the EU in July 2013 cle arly creates room for optimism. European development funds will continue to flow over the long term, supporting our forecasts, and private concessions as a means of building and operating infrastructure are gaining traction. This should see greater private involvement in the development of the country's infrastructure...

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Insurance

Croatia Insurance

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BMI View: As of late-2014, the latest data supports our view that times will remain tough for the insurance industry in Croatia for most of the forecast period. Thanks in part to the weakness of the economy and intense price competition, premiums have been falling in the non-life segment having an adverse effect on the profitability of some of the major players. In the life segment, which remains underdeveloped by most metrics, premiums are faring slightly better. 

The outlook for the insurance sector in Croatia remains fairly bleak. Official data points towards a fall in non-life insurance premiums in 2014, with growth being hampered by general weakness in the economy. The general lack of interest in unit-linked products suggests that investors and savers remain cautious: this is a challenge for the life segment, despite this we have seen some...

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Medical Devices

Croatia Medical Devices

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BMI Industry View: The Croatian medical device market will continue to contract in 2014, in line with poor GDP performance, but it is expected to increase by a CAGR of 3 .0% in US dollar terms over the 2013-2018 period. Growth will be driven by EU accession, which took place in July 2013. Closer integration into the EU should lead to rising living standards and greater scope for increases in health expenditure. No major changes are expected to take place in the domestic medical device industry in the short term, so the heavy reliance on imports will continue.

Headline Industry Forecasts

  • In 2013, the Croatian medical device...

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Oil & Gas

Croatia Oil & Gas

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BMI View: Increased upstream investment on the back of recent onshore and offshore licensing rounds, as well as an improved regulatory environment, provide considerable upside risk to our reserve and production outlook. However absent new discoveries that would cause us to revise our forecast, we continue to forecast a gradual decline in production of both oil and gas.

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Headline Forecasts (Croatia 2012-2018)
  2012e 2013e 2014f 2015f

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Pharmaceuticals & Healthcare

Croatia Pharmaceuticals & Healthcare

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BMI View:   Drug shortages have been reported for certain drugs such as antibiotics as their prices make them unprofitable for manufacturers. The HZZO continues to face a backlash from pharmacies and wholesalers over its pricing policies . We forecast weak pharmaceutical market growth over the next decade, in light of Croatia's acceding to EU pressure to rein in its budget deficit. W ith Croatia's economy remaining in the doldrums, fiscal expansion i n healthcare will be difficult to justify . We therefore expect growth to remain depressed over the next decade.

Headline...

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Real Estate

Croatia Real Estate

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BMI View:   The dire macroeconomic situation, rising public debt levels , falling consumption levels and low investor   confidence are all factors hinting towards a bleak 2015 for the commercial real estate market. Continuously falling demand, despite few new developments in the pipeline, is expected to lead to stagnating rent s in all commercial sub-sectors in two of our three monitored cities over the next 24 months . Net yields will decline across the sub-sectors.in two of our three cities, with only Zadar expected to post positive movement.

...

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Retail

Croatia Retail

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BMI View : Croatia's retail market continues to mature and present opportunities in future quarters for potential investors intent on the European Union's newest member. After a period of contraction, BMI forecast C roatia's GDP to climb from USD52 bn in 2015 to USD 58 bn in 2018. Croatia's middle class continues to grow, with 36 .6% of households in this key demographic projected to reach the USD10,000-plus income bracket in 2015. However, the labour market outlook remains bleak as the labour force is predicted to shrink during our forecast period into 2018.

Investors were optimistic about Croatia's future economic growth after the...

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Shipping

Croatia Shipping

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Outlook For Croatia Remains Difficult

We remain downbeat about the Croatian economy, continuing to predict a sixth consecutive year of recession in 2014. While the rest of the EU economies are recovering Croatia is one of only two (the other is Cyprus) expected to see negative growth. The problem is weak household spending compounded by a lack of structural reforms. Croatia needs to increase labour market flexibility, reduce government bureaucracy and improve export competitiveness, or foreign investment and exports will remain anaemic. Unemployment remains high (nearly 20%), as are consumer debt levels. Public sector workers have been hit by wage and job cuts as part of the government's fiscal tightening. Uncertainty has also weakened investment flows. Net exports are having a marginally positive impact, but are outweighed by these other negative factors. As a result we have further reduced our GDP growth forecast to...

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Telecommunications

Croatia Telecommunications

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BMI View:   Croatian mobile and mobile internet providers are still heavily affected by seasonality as the influx of tourists during the summer season will see subscriber numbers and usage grow significantly. Following two consecutive quarters of contraction, Croatian mobile market added 104,000 net customers in Q214. This trend has been clearly visible since June 2012. Despite this, yearly figures indicate that there is scope for growth in Croatian market. But due to a high market concentration m obile virtual network operators have found it difficult to establish meaningful competition to the main three network operators .   BMI also believes that there will be a significant dip in average revenues per user over the nex...

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Tourism

Croatia Tourism

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BMI View: Despite revising our growth forecasts for the Croatian tourism market downwards since 2014, we still expect to see the industry grow healthily over the coming y ears. Accession to the EU, combined with a general recovery in the economies of many European source markets, will continue to boost arrivals to the country by around a million over the forecast period and this will lead to positive developments across all other key market indicators with the exception of outbound tourism, which remains at risk of stagnation due to a relatively flat domestic economy.

The growth in arrivals that we expect to drive investment in the sector is likely to be lower than originally anticipated due to a slight slowdown in growth in the EU, which provides the bulk of arrivals to Croatia. As such, growth is dependent on the continued health of those...

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