Croatia Relatively Unscathed by the Global Credit Market Crisis

Compared to many countries in the region, especially larger states that are more integrated into the global financial system, Croatia is going through the global credit market crisis relatively unscathed, according to the credit rating agency Dun & Bradstreet (D&B) in its October report, which is being reported today by the Zagreb company BonLine.

In this month’s report, Croatia’s credit rating remains DB3c, which designates Croatia as a country with a mild investment risk. In a commentary on current events, D&B analysts note that certain negative impacts of the global crisis are being felt, particularly in the capital market, as stock prices listed on the exchange have fallen by more than 30 percent on average since the beginning of this year. They also add that there is an increase in the costs of insuring the debts of Croatian companies significantly above the levels from the first half of last year, as investors have remained cautious regarding exposure to potentially risky capital. At the same time, business and consumer confidence is moving in line with global trends – the slowdown in personal consumption growth has led to a significant slowdown in real GDP growth in the first quarter of 2008.

According to data from the Croatian Bureau of Statistics, GDP growth on an annual basis slowed to 4.3 percent in the first quarter of this year, after 7 percent recorded in the first three months of 2007. Although the slowdown is recorded in all categories, D&B notes that the greatest impact on the slowdown in economic growth has been the significantly lower rate of growth in personal consumption, which was 4.3 percent in the first quarter of this year, down from 7.1 percent in the comparable period last year.

This, they add from the credit rating agency, has also reflected in the further decline in the production of durable goods for general consumption. In July, the seventh consecutive month recorded a decline in the production of durable goods for general consumption, although the rate of decline from July, at 2.3 percent, was slightly lower compared to previous months, D&B reminds. However, D&B expects that in the upcoming period, the situation in the Croatian economy will be supported by a number of factors, such as the expected continuation of personal consumption growth due to wage increases despite stricter lending conditions. Additionally, they point to the growth in labor productivity (on an annual basis by 5.3 percent in the first seven months of this year), which should have a positive impact on the competitiveness of Croatian exports and enable Croatia to be in a good position to take advantage of any signs of recovery in external demand. D&B also emphasizes that the profitability of Croatian companies is strong and as such encourages capital investments. (H)