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The new Croatian Government approved

21.10.2016 16:22:00 | Autor/Izvor RBA analitičari, Croatia

The focus of the week was definitely on the new government, which was confirmed by 91 MPs (out of 151) voting in favour, thus implying that Croatia has finally entered a more stable political environment. The government plan presented for the next four years offers a comprehensive tax reform (mainly focusing on reducing the tax burden), institutional improvements to improve the business environment, and public sector reform through greater fiscal responsibility and a better utilisation of EU funds. So we will not be surprised if there is possibly a positive response from the investment community and the markets. On the other hand, experience shows that wellprepared programmes do not necessarily mean the successful implementation of reform measures, thus Croatia’s risk premium will remain above its peers in the CEE region, clearly indicating that winning back the confidence of investors depends heavily on the government‘s execution of the plan. Still, the better than expected economic recovery and improved fiscal metrics represent a good start, and point towards a stronger implementation of reforms in the first year of the government’s mandate already, said in CEE Weekly.

The latter could be confirmed by the upcoming fiscal data for Q2 2016, which will be published by Eurostat in accordance with ESA2010 methodology. Besides favourable revenues in H1, the record high tourist season also produced positive spill-over effects for the rest of the economy, thus the forthcoming registered unemployment rate for September might stay at 13%. Also, gross and net wages for August are set to be released next week, so we expect the positive real growth in average wages could continue due to negative inflation rates in annual terms.

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