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2019/09/11 / Erste Group Research

Economic and fiscal outlook more challenging in 2020

GDP growth slowed down more than anticipated in 2Q19, as external demand weighed on the figure, while domestic demand remained in good shape. 2H19 should bring a similar growth pattern, as domestic demand should overall remain in good shape (with EU funds remaining the countercyclical buffer) and export headwinds should keep net exports in the red, with elevated uncertainty posing the biggest downside risk to the economic outlook. We keep our FY19 GDP call at 3.2% (risks skewed overall to the downside) and anticipate a slowdown to the region of 2.0-2.5% in 2020.

The ongoing accommodative monetary policy stance is anchored by a comfortable inflation outlook and further dovish ECB rhetoric. Following a formal application to join ERM II (anticipated in 2020 in our baseline), we see the HRK trading in a tight band around 7.40 in the period ahead, anticipating the CNB acting diligently to tame strong volatility. The fiscal situation remains under control in 2019, while a test of fiscal prudence comes in 2020 owing to the political cycle and union demands. With regard to the rating outlook, we see ERM II membership as the next milestone. In the political arena, the presidential elections outcome should shape the political arena as we approach parliamentary elections in 2020.

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General information

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


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