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.

Country Risk

Croatia Country Risk

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Core Views

  • Croatia's economy will remain in the doldrums in 2015, with only a marginal return to positive growth expected in 2015.

  • Competitiveness issues are at the root of Croatia's problems, due to high labour costs, an inflexible labour market, and cumbersome bureaucracy.

  • Household spending will continue to struggle, amidst high unemployment, low wage growth, and battered consumer optimism.

  • The central bank's unwillingness to tolerate currency deprecation suggests a painful internal devaluation may be the only way for Croatia to boost price competitiveness over the coming years.

  • Croatia's perilous fiscal dynamics means the country is likely to require some form of IMF aid package over the next few years.

  • ...

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Croatia Operational Risk Coverage (9)

Croatia Operational Risk

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BMI View: Croatia is a regional outperformer on many metrics in the Operational Risk Index and is competitive on a global scale. The country boasts a good business and investment environment due to strong economic openness to foreign direct investment as well as a highly developed transport infrastructure network for the region, which eases the burden of trade. However, there are also risks, in particular corruption, lengthy bureaucratic processes, elevated costs to import/ export and an overregulated labour market which could deter potential investors. Croatia performs well globally with an overall score of 60.6 out of 100 in the Operational Risk Index, placing the country 9th out of 29 countries in the Emerging Europe region and 45 thglobally...

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Croatia Crime & Security

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Croatia is generally a safe place for foreign workers, expatriates and tourists, with only a residual threat of crime, and a virtually non-existent risk of terrorism and interstate conflict. In addition, security services in Croatia are well-trained and equipped, and respond effectively to call-outs. Nevertheless, standard precautions vis-a-vis personal safety should be observed throughout the country.

The greatest risks for investors and foreign businesses in our Crime and Security Index relate to criminal risks in Croatia. Overall crime rates are low with an average of 477 crimes per 100,000 inhabitants. Crime rates have been steadily decreasing in recent years, especially with regards to assault and murder, but business-related crime, such as (in order of prevalence) fraud by outsiders (16.7%), burglary (6.8%), vandalism (5.1%), extortion (0.7%) and motor vehicle theft (0.4%), is more prevalent in Croatia than the average in the Western...

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Croatia Labour Market

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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...

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Croatia Logistics

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BMI View: Despite heavy damage to the transport sector during the civil war, Croatia offers one of the best transport networks in the Emerging Europe region. This is due to intensive investment, with the help of global financial institutions, in the country's road, rail, maritime port and airport infrastructure after the conflict. Croatia's performs strongly in our Logistics Risk Index with a score of 58.6 out of 100, placing 8th in the region, substantially above of neighbours Serbia and Bosnia.

...

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Croatia Trade & Investment

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BMI View: Businesses and investors stand to benefit from the high level of openness to foreign direct investment in Croatia, due to pro-investment reforms of the regulatory framework which aims to treat foreign and domestic investors equally. There are however some concerns surrounding indirect discrimination against foreign investors due to corruption in the judicial system. Croatia's financial markets are more developed than in other countries in the region, such as Bosnia, although Croatia's capital markets are suffering from a lack of liquidity. Somewhat offsetting this, Croatia has excellent access to international markets, thus offering an alternative market place for trading...

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Croatia Industry Coverage (17)

Autos

Croatia Autos

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2014 has proved a very positive year for new passenger car sales within Croatia. Indeed, it has marked the first year since the financial crisis when a long period of pent-up demand for new vehicles within Croatia finally resulted in a strong sales performance by the local market. As such, this strong demand created in the automotive sector over the course of 2010 to 2013 - when sales remained at less than half their 2008 levels - outweighed our previous view that Croatia's passenger car market still had room to fall alongside falling private consumption and a sluggish macroeconomic backdrop.

Over the first 10 months of the year, passenger car (PC) sales were up by 24.4% year-on-year (y-o-y), at 30,064 units, according to figures from the European Auto Manufacturers Association (ACEA).

Commercial vehicle (CV) sales have also been powering ahead. 9M14 figures from ACEA show a total of 4,181 light commercial vehicles (...

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Commercial Banking

Croatia Commercial Banking

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...
Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Croatia Consumer Electronics

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BMI View: A weak economic environment continues to weigh heavy on the Croatian consumer electronics market as 2014 marks the sixth consecutive year of GDP contraction. Declining consumption, high unemployment, currency depreciation and fiscal austerity continue to squeeze demand for devices, countering the positive impact of some technology trends such as adoption of smartphones, tablets and smart TVs. BMI believes big-ticket items such as TVs and PCs remain hardest hit by the economic challenges facing Croatia, leaving the handset market as the outperforming sub-segment. The economy will face slow recovery, which should start filtering from 2016; declining average selling prices in several key product categories and comparatively low penetration rates should drive...

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Defence & Security

Croatia Defence & Security

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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...

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Food & Drink

Croatia Food & Drink

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BMI View: Croatia's economy will remain in the doldrums over the course of this year, with only a marginal return to positive growth expected in 2015. Competitiveness issues are at the root of Croatia's problems, due to high labour costs, an inflexible labour market and cumbersome bureaucracy. Household spending will continue to struggle, amidst high unemployment, low wage growth, and battered consumer optimism.

Headline Industry Data (local currency)

  • Total food consumption growth in 2015: +0.2%; compound annual growth rate (CAGR) 2014 to 2019: +1.2%.

  • Per capita food consumption growth in 2015: +0.6%; CAGR 2014 to 2019 +1.5%.

  • Alcoholic drinks sales growth in 2015: -0.2% y-o-y; CAGR 2014...

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Freight Transport

Croatia Freight Transport

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Following a year in which BMI believes saw mixed growth dynamics across Croatia's freight transport sector, 2015 will signal improving freight volumes in line with the macroeconomic outlook for the country and the region.

Total trade is projected to pick up with our Country Risk desk forecasting a year-on-year (y-o-y) increase of 1.36% in 2015 following an estimated growth of 1.12% in 2014.

Road freight is to continue to dominate the sector and is projected to grow by 4% in 2015. The sector did not manage to defy the downturn, with volumes plummeting in 2009-2012, and is struggling to recover.

Headline Industry Data

  • 2015 Air freight tonnage is expected to grow by 1.1%

  • 2015 Rail freight is forecast to grow by 1.6%

  • 2015 Port of Rijeka throughput is...

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Information Technology

Croatia Information Technology

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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...

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Infrastructure

Croatia Infrastructure

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BMI View: Croatia will gently move out of recession in 2015 with a paltry 0.4% real GDP growth 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 building subsectors will continue to stagnate, as they miss out on EU focus and lose out to a...

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Insurance

Croatia Insurance

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BMI View: Croatia is, and will remain, a low growth market. Competitive pressures remain intense in the non-life segment. The recent liberalisation of the CMTPL insurance market has resulted in a rise in volumes and a fall in prices. For now, we doubt that the recent and fairly strong increase in sales of unit-linked and single premium life insurance products will persist. Competition is likely to limit premiums growth in the non-life market. Structural constraints such as low incomes for some households and a preference for other forms of savings are likely to hold back the development of the life segment. Meanwhile, it is possible that the competitive landscape will...

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Medical Devices

Croatia Medical Devices

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BMI Industry View: The Croatian medical device market is expected to increase by a CAGR of 3.0% in US dollar terms over the 2013-2018 period. Growth will be driven by EU accession, which took place in July 2013. No major changes are expected to take place in the domestic medical device industry in the short term, so the heavy reliance on imports will continue.

Headline Industry Forecasts

  • In 2013, the Croatian medical device market was estimated at USD214.3mn, or USD50 per capita. This market size is comparable to Bulgaria; in per capita terms, the market is similar to Russia. The 2008-2013 CAGR was estimated at -2.1% in US dollar terms, but the market is...

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Oil & Gas

Croatia Oil & Gas

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BMI View: Croatia's Adriatic bidding round saw licences awarded to several international oil companies and future licensing rounds are likely to attract similar interest. The revival of interest in the Adriatic regasification terminal could see Croatia become a regional energy hub but absent major commercial finds, the outlook for domestic production remains bearish amid a weak reserve and production forecast.

Headline Forecasts (Croatia 2013-2019)
2013 2014e 2015f 2016f ...

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Pharmaceuticals & Healthcare

Croatia Pharmaceuticals & Healthcare

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BMI View: Successive governments' lack of budget discipline, weakening government revenues and concerns over the fiscal sustainability of healthcare spending will force the newly-independent national health insurer (HZZO) to make painful cuts. We expect this to hurt pharmaceutical expenditure as price restrictions are enacted. We expect growth in pharmaceutical sales to remain depressed over the short term, with serious implications towards Croatia's attractiveness to pharmaceutical companies.

Headline Expenditure Projections

  • Pharmaceuticals: HRK6.83bn (USD1.20bn) in 2014 to HRK6.55bn (USD0.94bn) in 2015; -4.0% in local currency and -21.9% in US dollar terms....

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Real Estate

Croatia Real Estate

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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...

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Retail

Croatia Retail

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BMI View: The Croatian economy continues to struggle and we do not expect a major breakthrough to take place in 2015. The country's output is not expected to grow significantly amidst the slowdown in the EU. Similarly, the outlook for the country's retail sector remains subdued in 2015. However, we expect total household spending to begin recovering in 2016 and beyond, creating some opportunities for retailers.

Following six years of negative growth, Croatia's GDP is expected to post only a modest recovery this year, at 0.1% year-on-year (y-o-y). Moreover, Croatia's public debt is estimated at around 70% of GDP and private debt also remains a concern for a large part of households. In February 2015, the government announced its...

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Shipping

Croatia Shipping

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Weak recovery on the cards

Croatia's main maritime hub, the Port of Rijeka, will see low bulk tonnage growth this year, with a slightly stronger expansion of container traffic. Performance at the ports of Ploce and Sibenik will be mixed, with container throughout at the latter falling. The reason for this disparate performance will be the weak state of the domestic economy and the country's poor foreign trade showing. After estimated strong growth in 2014, we expect foreign trade expansion to ease back again in 2015.

We have edged up our growth forecast for the Croatian economy this year, but it remains a stand-still scenario. Consistent with a run of year-on-year contractions since 2009, GDP again fell by 0.4% in 2014. For 2015 we now predict growth of 0.3% (up from 0.1% previously), with the pace of expansion rising marginally to 1.0% in 2016. Positives include the effect of...

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Telecommunications

Croatia Telecommunications

Tourism

Croatia Tourism

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BMI View: Croatia's tourism industry is set for a difficult short term as uncertainty rules in key European source markets, but should recover in the long-medium term. Strong natural tourism assets and a good geographic location has been bolstered with EU membership, but poor transport infrastructure and an over reliance on European source markets leaves Croatia vulnerable.

Croatia has an over-reliance on arrivals from the EU, which makes it vulnerable to economic downturns in the region impacting on the amount of foreign travel from citizens in key source markets. To become more robust, the government must look to further reach out to countries outside of the continent, in particular the Asian Pacific region. To date, the country has had some success with this, and Chinese visitors have increased over six-fold over the last five years (although admittedly from a...

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