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2019/03/11 / Erste Group Research

HR Macro Outlook, Croatia: GDP outlook somewhat deteriorated, fiscal and IGR prospects remain sound

The 4Q18 GDP data confirmed a more challenging external environment, underpinning our view that 2019 GDP will be shaped by domestic demand, while net exports will weigh more on the headline figure amid weaker external demand. Domestic demand should be backed by steady private consumption, while investments, as EU funds absorption picks up, should also gather some momentum in 2019. We trimmed our 2019 GDP forecast to 2.3% (from 2.6%), mostly reflecting the headwinds from the deteriorated exports outlook, which remains the biggest downside risk in the near term.

Moderating inflation pressures and a steady FX outlook should continue to back the dovish stance of the CNB, while policy efforts increasingly attempt to limit the buildup of potential vulnerabilities, with consumer credit being in focus recently. Consequently, monetary conditions should continue to support the LCY yields curve, while more dovish tones from the ECB and the prospects of IG rating (remains our baseline for 2019) were, in our view, behind the strong EUR yield compression recently. The fiscal framework should remain diligent in 2019 and we expect balanced budget performance and public debt moving close to 70% of GDP. Additionally, the recent assessment from the EC that Croatia is no longer recording excessive macroeconomic imbalances acts as a strong tailwind for aspirations to join ERM II 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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