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2020/09/11 / Erste Group Research

Pushing for 2023 EMU entry; GDP outlook affirmed

GDP plunged significantly in 2Q20 (-15.1% y/y), with domestic demand taking a strong hit, and exports reflecting the slump in the tourism activity to the greatest extent. As far as the outlook goes, we stick to our -9% call for 2020, with the good news being that we now see the risks as balanced. A better than expected tourism result would provide some tailwind to the 3Q figure, while domestic demand, both in terms of private consumption and investments, faces a drag from deteriorating labor market conditions, sentiment, and elevated uncertainty. The exports outlook remains blurred by the lack of clarity regarding the EU recovery pattern.

With ERM II membership achieved, the focus turns to EMU entry, with policy makers setting 2023 as the target. Little has changed regarding the fiscal outlook, and we see the budget gap in 2020 as close to 8% of GDP, with public debt coming close to 90% of GDP and the financing needs already largely met. We see Croatia retaining its IG rating, with the 2021 budget being the next checkpoint; expectations here are a return to within the Maastricht criteria. Monetary policy and the yield outlook are becoming more comfortable. The political risks subsided as HDZ secured a comfortable majority in the parliamentary elections.

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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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