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2019/06/17 / Erste Group Research

Special Report Croatia: What is Behind the Economic Turnaround?

The country’s impressive turnaround is underpinned by fundamentals. Excessive deficits and imbalances are long gone, which brought Croatia back to investment grade and allowed for euro-adoption aspirations. Our baseline remains ERM II entry in 2020 – signaling an increasing likelihood of 2023/24 euro adoption.

Croatia presented a major turnaround in the last few years, from the warnings that the country could become the ‘next Greece’ in 2015 to trading local currency 10Y bonds at yield levels well below the local safe haven Czech Republic in the last few weeks. We are taking a closer look at the fundamental drivers that supported this development, from the termination of the Excessive Deficit Procedure (EDP) and eventually Excessive Macroeconomic Imbalances Procedure, which brought Croatia back to the investment-grade region and allowed for its euro-adoption aspirations. The bond market performance has been quite impressive, with yields and spreads at post-crisis lows. Our baseline remains ERM II entry in 2020 – signaling increasing likelihood of 2023/24 euro adoption; furthermore, supportive fundamentals and monetary policy should keep yields and spreads at low levels.

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General information

AuthorErste Group Research
Product nameCEE Economies Special Report
Topic in focusFX, Macro/ Fixed income
Economy in focusCroatia
Currency in focusCroatian Kuna
Sector in focus-


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