Our comprehensive assessment of Croatia's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Croatia, as well as the latest industry developments that could impact Croatia's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Croatia before your competitors.
Croatia Country Risk
Croatia's economy will improve over the coming quarters, but will continue falling further behind its EU counterparts overt the long-term. Modest real GDP growth rates are the best the country can hope for in the coming years.
The new governing coalition is built on shaky ground and will struggle to remain united in the face of major political and economic challenges.
Debt sustainability remains the most evident risk to financial stability. Without rapid reforms, we believe Croatia will require some form of IMF aid package at some stage over the next few years.
Croatia's internal devaluation has further to run, with a further downturn in oil prices likely to increase disinflationary forces over the coming months.
Croatia Operational Risk Coverage (9)
Croatia Operational Risk
Croatia Operational Risk
BMI View: Croatia offers a relatively safe operating environment, with good transport links and utility availability. The country's score is dragged down by the size of its population and economy, although gradual growth suggests these conditions are improving. Overall, Croatia is placed in 10th position out of 31 countries in the Emerging Europe region and 54 thout of 201 states on a global basis, with a score of 59.8 out of 100 in BMI's Operational Risk Index....
Croatia Crime & Security
Croatia Crime & Security
BMI View: Croatia presents investors with limited risks from a crime and security perspective and is not a specific target of any international terrorist groups. The country is generally considered one of the safest in the region, with low violent crime rates, and benefits from a highly capable and reliable police force. Financial crime is a potential risk area, particularly in conjunction with the high levels of corruption in government, which create the need for additional due diligence when competing for public contracts. Overall, the low crime rates combined with a lack of domestic terrorism threat and solid regional relations give Croatia a strong score of 72.3 out of 100 on the BMI Crime...
Croatia Labour Market
Croatia Labour Market
Croatia's mediocre performance in BMI's Labour Market Risk Index is mainly due to the limited size of the labour force, high unemployment, low female participation rate, large informal economy, overqualification and skills mismatches of graduates for the job market, elevated labour costs due to a high minimum wage in the region, strong trade unions and labour courts, and a rigid and overregulated Employment Protection Legislation. Croatia's overall score of 55.1 out of 100 for Labour Market Risk places the country on 20th position regionally out of 30.
The Availability Of Labour in Croatia is below the regional average at 24 th position, with a score of 50.1 out of 100 in BMI's Labour Market Risk Index, because of the small size of the labour force (diminished during the 1990s war), the low female participation rate and urbanisation of the population and a large share of the informal...
BMI View: Investors in Croatia will benefit from a relatively robust transport network which offers a range of supply chain options following extensive investment in the country's road, rail, maritime and air transport infrastructure. Utilities infrastructure is also well developed, with little risk of supply interruptions, though we note reliance on fuel imports could drive up costs. There are also concerns relating to time-consuming trade procedures which serve to make Croatia less competitive on a regional basis. As such, the country has an overall score of 59.9 out of 100 on the BMI Logistics Risk Index which places Croatia 10th out of 31 Emerging Europe states.
Croatia's economic outlook is currently very poor, and...
Croatia Trade & Investment
Croatia Trade & Investment
BMI View: Croatia has enacted a number of pro-investment reforms to its regulatory framework in order to attract greater volumes of foreign direct investment (FDI) and aims to treat foreign and domestic investors equally. The country's domestic financial market is more developed than that of other regional states, such as Bosnia-Herzegovina, though a lack of capital market liquidity may result in businesses struggling to raise investment funds or access credit. Businesses do, however, have recourse to international markets, creating an alternative market place for trading securities, and overall the country has a high level of openness to FDI. The primary risk for investors stems from indirect discrimination due to high levels of corruption in the judicial...
Croatia Industry Coverage (17)
Commercial vehicle sales have been outperforming passenger cars against a recovering macroeconomic backdrop, with Croatia now moving out of recession.
A spate of new model launches from leading carmakers has provided clear impetus to the passenger car market across 2015.
For 2016, we are expecting commercial vehicle sales to continue to outperform passenger car sales.
At present, production of vehicles and auto parts remains very limited, but there may be scope for this to expand over the medium term, given Croatia's relatively lower labour costs and EU membership.
We expect Volkswagen to remain the dominant player in Croatia's new vehicle sales market over 2016. Early indications are that the ongoing emissions scandal facing the...
Croatia Commercial Banking
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Croatia Consumer Electronics
BMI View: We maintain a modestly subdued outlook for the Croatian consumer electronics market in our Q116 report update. We revised downwards our projections of the market in the Q415 report to capture the negative impacts of the kuna depreciation against the US dollar. In 2016, we believe the market will begin to stabilize and recover from the negative shocks of 2015. This year, the market will contract by a modest -0.4% before returning to positive growth in 2017 and beyond. There are however areas of opportunity, particularly from 2017, as vendors will be better positioned to tap into comparatively low penetration rates in device categories including tablets, hybrid notebooks, smartphones, smart TVs and UHD TV sets...
Defence & Security
Croatia Defence & Security
BMI View: Croatia's continued downsizing of its already small armed forces, the lack of an immediate threat to its security environment and a still-weak - albeit improving - economic outlook, will limit the country's defence expenditure going forward. As such, the domestic sector - which only has strong capabilities in land armaments and personnel equipment segments - will have to continue looking to foreign markets for opportunities. The limited procurement that the defence ministry is likely to undertake will primarily be met by foreign suppliers with more technologically advanced...
Food & Drink
Croatia Food & Drink
BMI View: Croatia's food and drink sector will gradually recover in 2016 and beyond, as domestic demand picks up following several years of contraction. While households will remain highly price-conscious throughout our forecast period, the strong performance of the tourism industry will bring some growth, especially in the alcoholic drinks sector.
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|f = BMI forecast. Source: BMI, national statistics|
Key Trends & Industry Developments...
Croatia Freight Transport
BMI View: We expect to see growth in all freight modes in 2016 as benefits from joining the EU in 2013 continue to materialise, such as increased export volumes with other members and infrastructure development funded by the union. The oil importing country is also benefiting from sustained low oil prices which are decreasing operational costs across all freight modes.
Total trade will increase by 2.2% y-o-y in 2016 and by an average of 2.8% over the 2016-2019 period. Exports to European Union members have improved while a slower recovery is expected for imports. Domestic consumption is restrained by high unemployment but low inflation rates are encouraging as they increase buying power.
Road freight will continue to be the mode most used in terms of tonnes transported while manufactured goods will remain the product category most trade in terms of...
Croatia Information Technology
BMI View: Croatia's entrance into the EU was completed in July 2013, and this should be a key driver of ICT growth, facilitating increased trade between European markets. Over the next five years, the process of EU convergence, which still has far to go, will drive spending on IT projects. Funds such as the EU Cohesion fund are already providing funding for IT projects related to modernisation initiatives in both public and business segments. However, private consumption levels in Croatia are expected to remain weak in 2014 and 2015, with fiscal consolidation and weak investment spending set to weigh on headline growth at just 0...
BMI View: Croatia will gently move out of recession in 2015 with a paltry 0.1% real GDP growth, according to our projections, amid an environment of fiscal initiatives and public sector cuts aimed at reducing the yawning budget deficit, all ahead of an increasingly likely EU/IMF bailout in the near future. The investment environment is being impacted by the poor economic scenario and the only real hope for infrastructure is in the form of large funds available through EU facilities, of which, fortunately, there are many. The railways and energy infrastructure sub-sectors are forecast to benefit in the near term from extensive European integration and modernisation projects. However, the residential and non-residential...
BMI View: The outlook is currently mixed for Croatia's developing insurance market. On the one hand, the life insurance market, although small, is expected to record steady growth in premiums as wider economic growth stimulates increases in household income rates, improving affordability and demand for a range of traditional life covers and retirement/saving products. On the other hand the prospects for non-life insurance are dampened by competitive pressures in the key motor insurance segment which is offsetting more positive growth in smaller lines. Overall, while we do expect to see some growth, the small size of the market and limited wider economic outlook in Croatia means that we do not expect to see any major investment in the country's insurance market over the medium term.
Croatia Medical Devices
BMI View : We expect the Croatian medical device market to increase by a CAGR of 2.7% in US dollar terms over the 2014-2019 period. The market will benefit from positive economic growth in 2015, following six consecutive years of contractions, as well as recovering demand from Croatia's main eurozone trading partners. The market will continue to remain heavily reliant on imports.
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Oil & Gas
Croatia Oil & Gas
BMI View: Croatia's upstream oil and gas sector has benefitted from interest among international oil companies over recent quarters, however contested maritime boundaries and regulatory uncertainty due to opposition to hydrocarbons exploration remain key threats to the sector. A positive decision on the proposed Krk liquefied natural gas terminal would have a significant impact on the local sector, resulting in increased gas imports and strengthening Croatia's role as regional energy hub.
Pharmaceuticals & Healthcare
Croatia Pharmaceuticals & Healthcare
BMI View: Reforms to Croatia's healthcare system have been laid out by the new coalition government's Minister of Health. There has been strong opposition within the government over these proposals; however, the country's healthcare is in dire need of restructuring given its growing burden of debt. These new fundamental reforms to insurance contributions and emergency healthcare should contribute to deficit reduction and lower the debt burden.
Headline Expenditure Projections
Pharmaceuticals: HRK6.73bn (USD860mn) in 2015 to HRK6.75bn (USD880mn) in 2016; 0.3% in local currency and 2.4% in US dollar terms. Forecast in US dollar terms revised upwards compared with Q2...
Croatia Real Estate
BMI View: The dire macroeconomic situation, rising public debt levels, falling consumption levels and low investor confidence are all factors hinting towards a bleak 2015 for the commercial real estate market. Continuously falling demand, despite few new developments in the pipeline, is expected to lead to stagnating rents in all commercial sub-sectors in two of our three monitored cities over the next 24 months. Net yields will decline across the sub-sectors.in two of our three cities, with only Zadar expected to post positive movement.
Rising public debt...
BMI View: Croatia's economy has finally emerged from a six-year long recession; however, economic conditions have yet to fully recover. Retailers should only expect to see significant improvements during the second half of our forecast period. The country continues to struggle with high levels of unemployment and relatively lacklustre economic growth and this will ensure that opportunities remain somewhat limited. Despite this, Croatia is still home to numerous retail expansion and consolidation opportunities in the long term.
Croatia's economy is on the road to recovery. Having contracted for six consecutive years, the country's real GDP is on track to post 0.3% growth in 2015 and we forecast this to improve to 1.0% by 2016, the first signs of growth during its membership within the EU. While more reassuring expansion is projected for the rest of the forecast period,...
BMI View: We estimate positive growth in tonnage and box throughput at Croatia's largest port, the Port of Rijeka, for 2015. Although this will be slower than 2014 we forecast that in 2016 tonnage handled will increase faster and container throughput growth will remain strong. Croatia's main trading partners are other eurozone members meaning that trade is restrained by poor economic performance experienced in the region over recent years. Nevertheless Croatia's GDP will turn positive in 2015 following six years of negative growth and this also reflects developments in other European countries providing optimism for increased trade going forward.
Growth To Stabilise A...
BMI View: We have revised our forecasts for the Croatian mobile market in our Q1 2016 report update. The Croatian market grew stronger than anticipated in 9M15 and Tele2 and VIPNet have both committed to significant network upgrades. VIPNet invested EUR18.6mn in securing two further blocks of 4G spectrum in Q415. Tele2 launched its 4G network in February 2016 boosting 4G coverage to 90% of the population. We believe this will result in higher competition and could lead to a price war in the 4G segment. We believe operators will focus on migrating prepaid customers onto higher-value postpaid packages and this will be the growth area over the course of our forecast period.
Latest Updates & Industry Developments
BMI View: Croatia's tourism sector is expected to expand throughout our forecast period, sustained by increasing arrivals and growing receipts. This will support the hotel and restaurant industry value, creating room for expansion, particularly with international, luxury brands. Strong efforts by the government to promote the country as a year-round destination are expected to improve arrivals and occupancy rates of hotels during the off-peak seasons, as well as boost the recognition of the country's non-coastal areas.