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2019/12/10 / Erste Group Research

Croatia Outlook | 2020 – pending green light for ERM II entry

We fine-tune our FY19 GDP forecast to 3.0% and confirm our call for 2020 at 2.5%. GDP growth accelerated in 3Q19 (2.9% y/y), owing to a solid domestic demand footprint and stronger than anticipated net export performance. As for the outlook, domestic demand should remain in good shape (strong labor market on the consumption side, EU funds being a counter-cyclical buffer on the investment side). The export outlook remains a headwind and key downside risk, reflecting the weak EZ growth momentum and ongoing normalization of the tourism contribution to exports.

The monetary policy course is set to remain accommodative in 2020, courtesy of the dovish ECB and comfortable inflation and exchange rate outlook. In 2020, we see the focus on ERM II entry prospects, with entry next year as our baseline. Fiscal discipline remains largely intact, though risks are increasing, mainly reflecting the approaching parliamentary elections (increasing public wage appetite). Public debt is heading below 70% of GDP. As far as the rating is concerned, ERM II membership is the next milestone. The presidential election takes the top spot in the political arena and the outlook is getting increasingly blurry.

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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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