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„Croatia Has No Answer to the Crisis“

Since 2008, Croatia is in a severe economic crisis. The average economic growth rate came at -1.7% in the last five years. In 2012, the GDP shrank by 1.8%. Croatia´s economic growth rate is expected to reach 0.1% this year. According to Vladimir Cavrak, economist at Zagreb University, the economic outlook is not promising at all. “The government has no answer to the crisis. There is no growth policy and no progress.” he says.

Vidi članak u: Friedl Business Information, Austria International Business and Diplomacy (4.2.2013.)

Nastavak:

In September, Finance Minister Slavko Linic said that further downgrades are unlikely. In November and December, Croatia´s sovereign debt rating was already cut by S&P and Fitch, however. Last week, Moody´s has downgraded the next EU member country again. All three rating agencies criticized the slow reform progress. Also IMF has put pressure on Croatia. The country must not only continue the austerity measures, but also support the real economy in order to generate growth, IMF said. Moody´s underlined that Croatia has not found new sources for economic growth. In the years before 2008, Croatia´s growth model was mainly based on consumption and the construction industry.

However, Croatia´s government has no fiscal room for growth policies. Retaining the current fiscal policy would cause more problems for Croatia than it solves, Linic argues. “If there is no economic growth, the austerity policy does not make sense.” he said recently. Initially, the government wanted to reduce the budget deficit by 1.0% of GDP in 2013. Due to the declining household income and the increasing unemployment, Croatia´s tax intake has decreased in the last years. Linic will have no other choice but to continue the austerity policy, analysts say. This year, the planned budget deficit comes at 3.8% of GDP.

In July, Croatia will join the EU. However, economists are in doubt whether Croatia may benefit from the membership. Moody´s has warned that Croatia may suffer from economic shocks in the first years after the EU accession. As Croatia´s industrial sector is not competitive, economists fear a collapse of the sector after the EU accession. As a result, the high unemployment rate of 21% will grow further in the next years, economists say. Moreover, Croatia´s labor market is still too rigid, Moody´s stated.

At the moment, Croatia´s government still tries to prevent to ask for a loan from the IMF. In the last months, Finance Minister Linic has underlined that Croatia will not need a loan. According to analysts, Croatia may be forced to ask for a loan soon, though. Last year, Linic admitted that a loss of the rating would require help of the IMF.