Croatia Outlook | Eyes on tourism
CEE Macro Outlook , 13. Juni
2025 kicked-off with solid 2.9% y/y growth in 1Q, with domestic demand remaining in the driver's seat, as, despite some moderation, the headline figure remained supported by both private consumption (1.7% y/y) and investments (4.5% y/y). Net exports remained a drag, as expected. We reiterate our call of 2.8% for FY25 GDP, roughly 1ppp below the 2024 figure, yet maintaining the trend of an above-EU average growth trajectory. As for the structure, the headline should remain well supported by the domestic demand drivers (though to a more modest extent), with external demand and global uncertainties shaping the risk profile and tourism getting more attention as the high season nears.
YTD inflation prints averaged 3.5% y/y, confirming the above-EU average trend. Figures remained shaped by food and service prices, to a large extent reflecting demand-side pressures. As far as supply-side factors are concerned, energy and the supply chain are looking relatively benevolent, while food prices bring more uncertainty. We continue to see the CPI average just a touch above 3%.
The budget gap for 2024 has been reported at 2.4% of GDP, while public debt, after almost 15 years, reverted below 60% of GDP. Deviation by 0.3pp from the official budget target would hardly raise any eyebrows, yet also more relaxed fiscal stance going into 2025, suggests higher fiscal risks and less maneuvering space going forward. We remain in the dark as far as the 2025 fiscal performance is concerned; we thus reiterate our call that we see the budget gap at 2.5% of GDP (official target 2.3% of GDP). Rating agencies remained on hold in the first round of rating assessments, and we expect the same scenario in the second round, as, after an intensive period of rating upgrades, we see no rationale or rush for another move in 2025.
The financing profile remains comfortable, with the MoF meeting roughly 75% of FY25 gross issuance, with issuance in 2Q moderated after an intensive 1Q. Yields moved closer to the 3% region on the long end, owing to benchmark moves and the spread holding steady ground close to the 50bp region, which we see prevailing in 2H25 as well. The big election cycle came to an end with local elections that yielded the incumbent HDZ as clear front-runners, and the vast majority of the opposition relatively depressed.
YTD inflation prints averaged 3.5% y/y, confirming the above-EU average trend. Figures remained shaped by food and service prices, to a large extent reflecting demand-side pressures. As far as supply-side factors are concerned, energy and the supply chain are looking relatively benevolent, while food prices bring more uncertainty. We continue to see the CPI average just a touch above 3%.
The budget gap for 2024 has been reported at 2.4% of GDP, while public debt, after almost 15 years, reverted below 60% of GDP. Deviation by 0.3pp from the official budget target would hardly raise any eyebrows, yet also more relaxed fiscal stance going into 2025, suggests higher fiscal risks and less maneuvering space going forward. We remain in the dark as far as the 2025 fiscal performance is concerned; we thus reiterate our call that we see the budget gap at 2.5% of GDP (official target 2.3% of GDP). Rating agencies remained on hold in the first round of rating assessments, and we expect the same scenario in the second round, as, after an intensive period of rating upgrades, we see no rationale or rush for another move in 2025.
The financing profile remains comfortable, with the MoF meeting roughly 75% of FY25 gross issuance, with issuance in 2Q moderated after an intensive 1Q. Yields moved closer to the 3% region on the long end, owing to benchmark moves and the spread holding steady ground close to the 50bp region, which we see prevailing in 2H25 as well. The big election cycle came to an end with local elections that yielded the incumbent HDZ as clear front-runners, and the vast majority of the opposition relatively depressed.