Croatia 

Croatia country policy

Policy established 12 November 2009

• ILC, bank guarantee or central public guarantee (unconditional)
• The country ceiling is 1000 mln euro
• Early warning signal 500 mln euro
• - of which was used as at 2010-07-31 7 mln euro

Country class: 5

Croatia country facts

Atradius Dutch State Business Economic Research
Country Report last updated :  11 August 2010 
Country :  CROATIA 

Political Situation
Rather Stable

Head of state
President Ivo Josipovic.

Form of government
Centre-right coalition of the Croatian Democratic Union (HDZ), Croatian Peasants’ Party (HSS) and the Social Liberal party (HSLS), headed by p.m. Jadranka Kosor.

Internal Economic Situation
Recession In 2009 And Probably 2010

General situation
After years of sustained GDP-growth, the economy has fallen into recession. The real GDP-contraction of 5.8% in 2009 was based on collapsed (industrial) exports (-16%) and domestic spending (-8.7%) due to tightened (inter-) national credit conditions and fallen property prices. Although bottoming out, the recession lingers on in 2010 (Q1 -2.5%). Economic structure continues to be weak: more than half of state-owned firms (>1000) are loss-making and need to be restructured/privatised urgently, especially in sectors like textiles, steel, shipbuilding, agriculture and even tourism. Low inflation: 0.7% July 2010. Despite progress Croatia is still underperforming on the TI-corruption index (66th  of 180); black market activities are only partly disguising the  high unemployment (>15%).
 
External Economic Situation: Very High External Indebtedness

Main sources of foreign exchange
Tourism, private transfers, industrial products: textiles, chemicals, transports.

Main foreign markets
EU (62%): Italy 19%, Germany 10%; Bosnia (14%).

Main expenses of foreign exchange
Machinery and transport equipment (32%).

Balance of payments 
After years of constantly widening trade and current account gaps, improved external finance since 2009 because imports have dropped faster than exports. Less FDI and stalled fresh credits are not covering the declined deficits, resulting in less
External economic situation
The budget deficits and the high external debt service are sources of macro-economic vulnerability with regard to the reliance on external finance. Without IMF-support and fresh debt inflows, these very high borrowing requirement will trigger further falling reserves.