Market to Watch: Croatia

Tourism and the EU

Croatia is looking at years of growth thanks to the convergence of the Eurozone’s economic and fiscal policies and the dynamism of its tourism sector.

Croatia recently made waves in world news when its national football team reached the World Cup final in Moscow against France.

Although the French won 4-2, making to the very last stage of the championship was still a major victory for the Balkan country.

According to latest data available from the European Union, France’s expenditure on “recreational and sporting services” in 2016 stood at 0.5% of GDP, while Croatia spent only 0.1%. France’s GDP is over 47 times higher than that of Croatia.

After being severely affected by the global financial crisis, the country seems to be back on a path of growth with a 2.8% GDP increase estimated for 2018, and similar numbers for the years to come.

In a recent government session, Croatia’s Prime Minister Andrej Plenković stated: “This is the continuation of positive economic trends in the medium term. We are continuing fiscal consolidation, sound economic growth and public debt reduction. We want the kind of economic growth where all budgetary beneficiaries behave responsibly.”

As fiscal and macroeconomic performance accelerates Croatia’s reduction of public debt, the country could meet Maastricht criteria by 2021.

Fulfillment of these criteria, which includes different ratios related to government debt and the budget deficit, is a prerequisite for adopting the Euro, which would replace the Croatian kuna.

After the signing of its ascension treaty in 2013, Croatia was the latest country to join the European Union. The bloc is currently under negotiations with other former Yugoslav republics: Serbia, Bosnia Herzegovina, Macedonia, and Montenegro, as well as Albania.

Among other effects, the ascension of new neighboring countries would lead to increased regional competition for Croatia, necessitating additional economic reforms to make the country more attractive in the region.

Countries joining the EU would need to adopt the so-called acquis communautaire, the extensive accumulated legislation of the bloc that ranges from agriculture to industrial policy, in order to standardize their markets.
This would increase the status of Croatia’s capital Zagreb as a regional hub for business operations in the Western Balkans.

Croatia is also under talks to join the OECD, which currently consists of 36 of the world’s most developed nations and which will soon welcome Colombia. Current members such as Canada or Italy have publicly supported Croatia’s aspirations to become part of the organization.

The outlook for the private sector is also positive. In a recent economic survey by the Croatian Chamber of Economy, Croatian businesspeople remain moderately optimistic for the second half of the year. Nearly half of the companies surveyed (46%) are expecting to maintain current levels of revenue in the second half of 2018. The percentage of companies expecting even better results (36%) is twice as high as the percentage expecting worse results (18%).

One of the main contributors to this increased optimism is the tourism industry, which in 2017 had an overall contribution to the GDP of USD13,743.3 million, equivalent to a quarter of the country’s GDP.

This contribution is expected to grow by 3.3% in 2018 and maintain a yearly growth above 4% during the 2018-2028 period, according to the World Travel and Tourism Council.

On a recent press release, American Airlines announced the launch of a seasonal flight from Philadelphia to Games of Thrones filming set Dubrovnik for 2019, making it the first direct flight between the countries for almost three decades.

This year Korean Air will launch a direct flight between Zagreb and Seoul and is negotiating an expansion of its interline agreement with Croatia Airlines.

With all these, Croatia received 18.5 million tourists in 2017, and prospects for the next few years are encouraging.

That would mean over 4.4 tourists per capita, with the same figure for France being 1.3, this time a score more favorable for Croatia.