Macro Croatia 0709

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  • 7/31/2019 Macro Croatia 0709

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    RaiffeisenResearch Report

    9002yluJ43.oNhcraeseRaitaorCknabnesieffiaR5049-2331NSSI

    Few reasons for optimism,many for changes

    The strong fall in economic activity at the beginning of 2009 shouldnot have come as a surprise considering the real sector indica-tors and the intensity of GDP fall in other countries of the region.Continued strong fall in domestic economy in the next quartersshould also not surprise us. In view of the numerous insecurities asregards this years tourist season, we should not discard the pos-sibility of even stronger-than-expected GDP fall. Only slightly morefavourable developments may be seen in the second half of nextyear, which will reflect themselves on the domestic labour marketwith an additional time delay, not earlier than 2011. The reactionsof the economic policy-makers to the crisis were more or less inline with expectations. The central bank continued implementingthe stable exchange rate (price) policy, which was, considering thespecifics of the domestic economy, a justified choice. At the sametime, the fiscal authorities failed to find an appropriate solution,both economic and political, to reduce the rising public spending

    during the major part of this year. Under such circumstances thelargest burden was carried by the corporate sector. We have notseen any efficient anti-recession measures as yet. The characterof the current state subsidies system is more that of an instrumentof social policy and less of economic policy, therefore its positiveinfluence on the economy is limited. Moreover, the necessity to cutthe budget deficit will probably lead to the increase in tax burdenand/or excise duties, creating additional pressures on the decliningeconomic activity. The exceptionally strong role of the state in thedomestic economy has resulted in a fact that budget deficit leads toa substantial deterioration in the liquidity of the real economy. Thesaid problem is additionally underlined by the fact that corporate

    sector demand for loan exceeds supply, since a substantial portionof the banks lending potential this year was used to finance gov-ernment needs.

    A decline in foreign direct investments and a slowdown in thegrowth of external debt show that the recovery in capital flows to-wards the fast-growing economies in the region will take time. Ex-cept pressures on national currencies and on the stability of thefinancial market in the region, reduced inflow of foreign capital willlimit the room for recovery of domestic spending. For this reason,more export-oriented countries of the region could see a faster andeasier recovery. Croatia is faced with a period for large changes ineconomic policy because if we continue to rely primarily on stimuli

    from the external environment, recession will be followed by eco-nomic stagnation, not to exclude the possibility of stagflation.

    Gross domestic product,real annual growth rates

    %

    6

    4

    2

    0

    2

    46

    8

    2008 2009e

    dnalo

    P

    yragnu

    H

    hcez

    C

    cilb

    ub

    eR

    aik

    avol

    S

    ainevol

    S

    aitaor

    C

    airaglu

    B

    ainamo

    R

    aibr

    eS

    aina

    blA

    .H

    .aainso

    B

    enozoru

    E

    ASU

    Sources: Raiffeisen Research, Bloomberg

    Movements in the balanceof payments

    0

    1

    2

    3

    4

    5

    6

    7

    8

    9

    10

    PDGf

    o%

    2000

    2001

    2002

    2003

    2004

    2005

    2006

    2007

    2008

    2009

    e

    2010f

    Current account deficit

    Foreign direct investments

    Sources: CNB, CBS

    Total loans by sectors

    507090

    110130150170190210230250

    Loans to government

    Loans to households Loans to enterprisesQ

    4.0

    5

    Q

    1.0

    6

    Q

    2.0

    6

    Q

    3.0

    6

    Q

    4.0

    6

    Q

    1.0

    7

    Q

    2.0

    7

    Q

    3.0

    7

    Q

    4.0

    7

    Q

    1.0

    8

    Q

    2.0

    8

    Q

    3.0

    8

    Q

    4.0

    8

    Q

    1.0

    9

    KRH

    noilli

    b

    Sources: CNB, Raiffeisen Research

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    22

    Contents

    INDICATORS

    Selected macroeconomic indicators ............................................................................... 3

    GDP AND INFLATION

    Strong GDP fall, weaker inflationary pressures ................................................................ 4

    INDUSTRIAL PRODUCTION AND EMPLOYMENT

    Recurring problems in the domestic labour market .......................................................... 5

    TRADE AND TOURISM

    Tourism does not bring recovery .................................................................................... 6

    INTEREST RATES AND MONETARY AGGREGATES

    Expected decline in M1 .................................................................................................. 7

    EXCHANGE RATE

    A temporary break ........................................................................................................ 8

    BALANCE OF PAYMENTS, TRADE AND EXTERNAL DEBT

    External debt growth halted ........................................................................................... 9

    GOVERNMENT BUDGET

    In expectation of third budget revision ...........................................................................10

    FINANCIAL SYSTEM

    Growing risk of placements ......................................................................................... 11

    WORLD TRENDS

    Price recovery spurred by expectations of growing demand ............................................12

    BANKING SECTOR

    Global financial crisis and banking systems of New Europe .........................................13

    BONDS

    First Eurobond issue since 2004 ....................................................................................16EQUITY

    Optimistic quarter ........................................................................................................1710 shares account for 70% of turnover ..........................................................................18In line with global sentiments ........................................................................................19

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    Indicators

    33

    Selected macroeconomicindicators

    2001 2002 2003 2004 2005 2006 2007 2008 2009e 2010f GDP & production

    Gross domestic product, % (constant prices) 4.4 5.6 5.0 4.2 4.2 4.7 5.5 2.4 4.5 0.4GDP at current prices (EUR million) 25,539 28,110 30,014 32,759 35,720 39,102 42,832 47,390 45,495 47,083GDP per capita at current prices (EUR) 5,756 6,327 6,756 7,375 8,045 8,817 9,675 10,724 10,271 10,843Retail trade, % real annual changes 10.0 12.5 3.7 2.6 2.8 2.1 5.3 0.5 9.1 0.6Industrial production, % annual changes 6.0 5.4 4.1 3.7 5.1 4.5 5.6 1.6 5.1 1.7

    Prices, employment and budget

    Consumers prices1, %, eop 2.4 1.9 1.7 2.7 3.6 2.0 5.8 2.9 4.2 4.3%, avg 3.8 1.7 1.8 2.1 3.3 3.2 2.9 6.1 3.2 4.4

    Producers prices, %, eop 3.1 2.3 1.0 4.8 2.7 1.9 5.8 4.7 1.9 3.9%, avg 3.6 0.4 1.9 3.5 3.0 2.9 3.4 8.4 0.4 4.0

    Unemployment rate2 (official rate, eop) 23.1 21.5 19.1 18.5 18.0 17.0 14.7 13.7 14.5 14.4Average net wage, in HRK, eop 3,582 3,839 4,045 4,312 4,473 4,735 4,958 5,410 5,150 5,200General government balance3, % of GDP 6.8 4.9 6.2 4.8 4.0 3.0 2.3 2.4 3.4 2.5

    Balance of payment and external debt

    Goods export, EUR million 10,809 11,128 13,141 14,243 15,273 16,992 18,317 19,835 16,621 18,068% change 14.8 3.0 18.1 8.4 7.2 11.3 7.8 8.3 16.2 8.7

    Goods import, EUR million 12,10113,80115,17916,19917,47319,63221,48523,73919,19522,336% change 15.9 14.0 10.0 6.7 7.9 12.4 9.4 10.5 19.1 16.4

    Current account balance, % of GDP4 3.2 7.5 6.3 4.4 5.5 6.9 7.6 9.4 6.7 7.9Official international reserves, EUR millon,eop

    5,334 5,651 6,554 6,436 7,438 8,725 9,307 9,121 8,000 7,600

    Official international reserves, in terms ofmonths of imports of goods and services, eop4

    5.3 4.9 5.2 4.8 5.1 5.3 5.2 4.6 5.0 4.1

    Foreign direct investment, EUR million 1,467 1,138 1,762 950 1,468 2,765 3,667 2,930 1,000 1,800Tourism nightstays, % change 10.9 3.0 4.3 2.5 7.6 3.1 5.6 2.0 8.5 3.0External debt, EUR billion 13.6 15.1 19.9 22.9 25.7 29.3 33.3 39.3 40.8 42.0External debt, as % of GDP4 53.3 53.9 66.2 70.0 72.1 74.9 77.6 82.4 89.7 89.2External debt, as % export of good andservices4

    125.9 136.1 151.3 161.0 168.6 172.3 181.5 196.8 245.5 232.5

    Monetary and financial data

    Exchange rate, eop, USD/HRK 8.35 7.15 6.12 5.64 6.23 5.58 4.99 5.16 5.03 4.93avg, USD/HRK 8.34 7.87 6.70 6.04 5.95 5.84 5.36 4.94 5.25 5.21

    Exchange rate, eop, EUR/HRK 7.37 7.44 7.65 7.67 7.38 7.35 7.33 7.32 7.65 7.50avg, EUR/HRK 7.47 7.41 7.56 7.50 7.40 7.32 7.34 7.22 7.46 7.55

    Money (M1), HRK billion, eop 23.7 30.9 33.9 34.6 38.8 48.5 57.9 55.2 50.9 52.0% change 30.1 30.2 9.8 2.0 12.3 25.0 19.3 4.6 7.8 2.1

    Broadest money (M4), HRK billion, eop 106.1 116.1 128.9 139.9 154.6 182.5 215.8 225.0 230.6 241.9% change 45.2 9.5 11.0 8.6 10.5 18.0 18.3 4.3 2.5 4.9

    Credits, HRK billion 75.0 97.5 111.7 127.3 149.2 183.4 210.8 233.0 253.7 281.6% change 23.1 30.0 14.6 14.0 17.2 22.9 15.0 10.5 8.9 11.0

    ZIBOR 3m, %, avg 7.9 4.6 5.5 7.3 5.2 4.3 5.7 7.2 10.5 8.0Treasury bills rate 12m, %, avg 3.7 4.8 6.3 5.0 3.9 4.2 6.0 7.8 6.7

    1 RPI (retail price index) was used for the period 199720012 Survey of labor force by ILO me