Croatia Ranked Among Countries with Low Risk for Investors

Croatia’s credit rating remains DB3c, which ranks it among countries with low risk for investors, announced the credit rating agency Dun & Bradstreet (D&B) in its November report, in which it downgraded ratings for as many as 30 countries, reports the Zagreb company BonLine.

The report states that instability in the global credit market has not yet significantly affected Croatia, primarily due to the stable exchange rate of the kuna, relatively low exposure of banks to external debt, and pro-reform moves by the Government. However, they note that Croatia is not completely isolated from crisis events.

It is reminded that the Croatian National Bank has ceased applying regulations on the mandatory reserve requirement and thus made approximately 335 million euros and 129 million dollars available to banks. This, it adds, has improved liquidity and helped fulfill banks’ obligations to clients. The report recalls that the slowdown in real GDP growth continued in the second quarter, where it amounted to 3.4 percent year-on-year, the lowest since the first quarter of 2005.

Growth was driven by an unexpected increase in public consumption of 3.2 percent year-on-year, while the largest negative impact came from the slowdown in private consumption growth (to 2.2 percent in the second quarter compared to 4.3 percent in the first quarter of this year), which in turn affected the reduction in the production of durable goods, which, according to data from the Croatian Bureau of Statistics, fell by 6.1 percent in August compared to the same month last year, it adds. On the other hand, the report states that growth in construction remained strong at 12.6 percent, although the coming months are expected to bring stagnation in the construction of residential buildings and roads.

D&B also reflects on the slowdown in industrial production growth to 2 percent in the second quarter, the slowdown in trade, the increase in the current account deficit of the balance of payments, and the slowdown in export growth, especially of goods. It is also noted that total external debt increased by 6.6 percent in the first seven months of this year compared to the same period last year. Despite these indicators, D&B analysts believe that the inflow of money from foreign direct investments and an increase in employment, as well as a number of other factors, will help the economy. Additionally, it recalls the increase in labor productivity of 4.2 percent in August and that corporate productivity remains strong.

At the same time, the report states that the reform process has stagnated and reminds that the annual EU report on the progress of reforms will be published during this month, as well as that the President of the European Commission stated in September that much needs to be done in reforming the legal system and competition policy. It is noted that Prime Minister Sanader, in line with earlier criticisms that Croatia needs to do more to start combating corruption and organized crime, dismissed the ministers of internal affairs and justice as well as the police chief, in response to the ‘mafia’ murder of the daughter of a well-known lawyer.  (H)