Croatian Economy Smaller by 8.8% YoY in Q1-Q3 2020

In the third quarter of 2020, Croatian GDP fell by 10.0% compared to Q3 2019, resulting in fall of 8.8% in the first nine months of 2020. Considering partial lockdown that was imposed last week, positive surprises are unlikely this year, but at least 2021 prospects look brighter. In this article we are looking into details regarding Q3 2020 GDP and what could we expect in the following period.

According to the latest data provided by Croatian statistical office, Croatian GDP fell by 10.0% in the third quarter of 2020. That was the second biggest GDP fall ever recorded, right after 15.4% YoY plunge in the quarter before. In the first nine months of this year Croatian economy is down by 8.8% and it is expected to end the whole year at around -7.5% YoY.

Double-digit decrease of GDP in terms of YoY was widely expected bearing in mind all the challenges in the last few months. However, looking at the data there were some positive surprises which capped fall to ‘just’ 10.0%. The biggest surprise came from changes of inventories which contributed to the overall result by more than 10.0%. This means that if inventories stood at the same level as they were in Q3 2019, real GDP would be lower as much as 20.0% in Q3. Off course, that is hard to imagine since companies did not build their inventories months before as they were not expecting touristic season to happen at all. Another positive surprise came from investment that decreased by only 3.0%, most likely driven by continued growth in construction sector, and from government consumption that rose by 1.5% YoY.

On the other side household consumption was down by 7.3% YoY and was great drag for the overall result. Also, exports of goods and services decreased unpleasantly by 32.3% YoY with exports of goods decreasing by only 3.0% while service sector volume was lower by 45.3%. Considering situation regarding coronavirus in early summer and media coverage after the tennis tournament on Croatian coast, tourism sector proved to be much more resilient that some were thinking. At the same time, imports of both goods and services fell by ‘mere’ 14.1%. As fall of exports overshadowed fall of imports, next export was positive by only HRK 10.989bn compared to HRK 31.364bn in penultimate quarter of 2019, meaning that fall of net exports in the third quarter of 2020 shaved almost 5.0% of Croatian GDP, hence presenting once again the enormous significance of touristic sector for the economy.

To sum up, last two quarters were the worst quarters on the record for Croatia but also for most of the European and global economies. Looking at the data for Q3 in Europe, most of the countries started recovering but seems there will be a long way before we reach 2019 GDP levels again.

What investor had to say on the Croatian Q3 GDP data? Well, Croatian 10Y EUR Eurobond CROATI 2031 trades at the highest levels on the record, i.e. its YTM reached all time lows of 75bps. However, it looks like there is more room for tightening if you bear in mind that in the February CROATI 2030 stood at 55bps versus some -35bps on German Bund implicating spread of around 90bps. Looking at the Croatian equity index Crobex, it seems like investors are becoming more bullish due to vaccine hopes and new instruments on Croatian market.

Source: Bloomberg, InterCapital

Marin Onorato
Category : Blog

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