Outlook For Croatia Gets Gloomier
BMI is bearish about Croatia's economic prospects this year, emphasizing that the continuing need to deleverage over-indebted households and companies is scuppering the chances of recovery. We have cut back out GDP forecast for 2014 from +0.4% in our last quarterly report to -0.3% now. This rather grim projection means we believe the country's economy is going to contract for the sixth consecutive year. The single most important cause for this is the weakness of the Croatian consumer, deterred by high unemployment, low purchasing power, high debt, and low levels of confidence. While the financial position of the banks is now a little better, they are in no position to expand credit significantly. Likewise, as the government remains focused on reducing its fiscal deficit there is little chance of stimulation from this quarter. The construction industry outlook is bleak. Although the recent accession to the EU may bring some dynamism to infrastructure investment, we don't think this will be a game-changer. The contribution from net exports is also overshadowed by structural and competitiveness issues in the country's manufacturing sector. Our conclusion is that in the absence of new reforms, Croatia could be facing many more years of economic pain.
Looking at the ports and shipping sector, we believe annual bulk cargo percentage growth will remain in the low single digits, although with GDP contracting, there are downside risks to this. The largely import and transit-led box traffic outlook is more encouraging, with growth in the higher single digits (between 5% and 10% per annum). This, at least in part, reflects the country's role as a regional gateway for transit trade. On the whole, we do not believe bulk tonnage handled at Croatia's main ports will exceed the record levels achieved back in 2007/08. On the container side, however, we see steady growth boosted by regional import demand.
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