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. Anaemic real GDP growth rates are the best the country can hope for.
Already severe competitiveness issues are unlikely to be effectively tackled by the country's next ruling administration, regardless of who wins the 2015 election.
Debt sustainability remains a salient risk to financial stability. 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.
Major Forecast Changes...
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 is one of the major nations comprising the former Yugoslavia. The country witnessed significant destruction during the Balkans Wars of the 1990s, at the same time, Croatia was also one of the conflict's major belligerents. One of the consequences of the country's participation in the Balkans Wars was that it developed a high level of competency as regards the research, design, development and production of platforms and subsystems for land forces. This was a direct result of the country's pressing need to ensure that its armed forces were equipped during these conflicts, as a result of a United Nations-led embargo in place on all of the belligerents involved in the conflict.
As a consequence of its self-sufficiency in the provision of land armaments, Croatia emerged from the conflict with a significant land armaments industry capable of not only...
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. This will give a boon to sales of more discretionary food items, although growth will remain subdued. Combined with a negative demographic outlook, long-term opportunities in the sector will be limited.
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We forecast headline household spending to return to positive territory in 2016,...
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: Croatia will remain one of the smaller insurance markets in Central Eastern Europe, with only limited growth potential from an investment standpoint over the next few years. That said, we see opportunities emerging in some areas of the market as the economy begins to outperform our earlier expectations. We forecast premiums to grow at a steady pace across both the life and non-life markets over 2015-2019, while demographic trends including a growing retirement age population will support long-term demand for life insurance products. Despite these positives, Croatia will is likely to remain a side concern for the majority of multinational insurers.
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: The Croatian Institute for Health Insurance (HZZO), since gaining its independence from the State Treasury at the start of 2015, will increasingly become more assertive in imposing its own policies on pharmaceutical expenditure and this will have considerable implications for the pharmaceutical sector in the country. While improving patient access to pharmaceuticals has been highlighted as a key objective of the HZZO, we also note that drug sales growth in Croatia will be moderated over the medium term.
Headline Expenditure Projections
Pharmaceuticals: HRK7.01bn (USD1.23bn) in 2014 to HRK6.73bn (USD961mn) in 2015; -4.0% in local currency and -21.9% in US dollar terms. Forecast unchanged from Q...
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 Vip-Net have both committed to significant network upgrades. Vip-Net invested EUR18.6mn in securing two further blocks of 4G spectrum in Q415 and Tele2 is expanding its 3G data service to 97% of the country whilst launching 4G services in Q1 2016. 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
The mobile market added a total of 274,000 new subscribers in Q215 and Q315 to bring the total number of subscribers to 5....
BMI View: The Croatian tourism industry continues to grow rapidly and we maintain a firmly positive outlook for growth over the next few years. Inbound tourist arrivals will increase by 5.1% in 2016, reaching 12.8mn, driven in large part by improving economic conditions across Europe and benefitting from an expanding number and geographical diversity of international air travel connections. Indeed, while Europe will remain the predominant source market for the industry for the foreseeable future, efforts to attract tourists from the Middle East and Asia in particular will begin to bear fruit and become a more important driver of growth. Investment opportunities in the hotel sector have traditionally been hampered by a weak investment climate, but Croatia's joining of the EU in 2013 has bolstered its attractiveness to foreign investors and will likely generate growing...