Croatian government budget surplus to GDP ratio in Q2 2022 has amounted to 1.7% of GDP. Slovenia has achieved a budget deficit of 3.6% of GDP in Q2 2022. EU budget deficit stood at 1.7%, noting an increase of 6.4 p.p. Nevertheless, both Croatia & Slovenia noted a lower public debt as a percentage of GDP due to the higher YoY GDP (a low base effect).

Croatian government budget surplus in H1 2022 stood at 1.7% of GDP, noting a solid increase of 6.4 p.p. using preliminary data. Further, Croatia is one of the countries that reported the highest increase in government surplus as a percentage of its GDP. The reason for such an improvement in the government surplus in terms of GDP lies in both the numerator and denominator of the mentioned ratio. First of the explanation, and the more important one, is an increase in Croatia’s GDP of 15.4% YoY in 2021 (also expected in preliminary data for H1 2022). But nevertheless, we want to stress out that this increase happened on the back of a low base effect, as GDP was achieved in 2020 and H1 2021 was hit by the pandemic. Nevertheless, to put things in perspective – GDP achieved in 2021 was still higher than the GDP achieved in 2019 by 6.2%, which actually gives us a real sense of an improvement. Besides the improvement in GDP, improvement was still amplified by achieving a government surplus, instead of a government deficit in the prior year. Improved government surplus was achieved primarily due to the lower government expenditures, while government revenue increased slightly, but overall stood flat.

Croatia Public Debt & Deficit (% GDP)

Source: Eurostat, InterCapital research

Public debt as % of GDP has decreased by as much as 12 p.p. YoY and has amounted to 74.3% of GDP in H1 2022, also driven by an already-mentioned increase in GDP. Croatia noted a slight nominal increase in debt, which amounted to HRK 343.7bn (+0.6% YoY). But due to a higher increase in GDP, public debt as a percentage of Croatia’s GDP decrease nevertheless and amounted to 74.3%.

Slovenia Public Debt & Deficit (% GDP)

Slovenia has noted a higher budget deficit amounting to 3.6% GDP, noting an increase of 2.6 p.p YoY in H1 2022, using preliminary data. Also, in H1 2022 Slovenia’s government debt as a percentage of Slovenian GDP noted a YoY decrease, amounting to 73.5%, due to the lower base effect of the country’s GDP.

At the end of September 2022, the NAV of the Croatian mutual funds declined by 2.1% MoM, amounting to HRK 16.49bn. On a YTD basis, the NAV decreased by 23.3%, while at the same time, compared to its pre-COVID-19 maximum, it dropped by 28.5%.

The Croatian Agency for the Supervision of Financial Institutions (HANFA) has recently published its monthly report on the development and changes that were recorded by the Croatian financial markets, for the month of September 2022. As mutual funds have a noteworthy influence on the Croatian financial market (besides the pension funds), changes that they record can be reflective of the market as a whole. Given that since the start of the year the macroeconomic and geopolitical situation in Europe deteriorated, with high inflation rates and a drop in the value of equity and bonds, it is even more prudent to look at the current trends in the market.

By the end of September 2022, the NAV of Croatian mutual funds amounted to HRK 16.5bn, which is a decline of 2.1% MoM, and 23.3% both on a YTD and YoY basis. If we exclude the July and August of this year, the decline in the NAV continues the negative trend that has been recorded ever since November 2021. Also, the NAV declined by 28.5% compared to its pre-COVID-19 maximum, which would mean that if this trend continues, the mutual funds will lose roughly a third of their value in a couple of months.

Looking at the changes recorded by the asset types of the funds, on a monthly basis, the largest decline was recorded by the deposits and cash, which decreased by HRK 471.7m or 12.2%. Following them, we have shares, which decreased by HRK 157.6m (or 7.9%), and investment funds, which decreased by HRK 97.3m (or 6.5%). On the other hand, the money market asset holdings increased the most, by HRK 374.1m (or 149%), followed by receivables by HRK 121.6m. However, several things need to be noted here. The decrease in value in a single asset type does not only have to mean that a certain asset type lost some of its value on the market, it could also be due to the fact that fund managers shift their investments from one asset type to another. Also, looking at the net contributions into the funds in this context makes sense, as the loss in value could also happen if more contributions are redeemed than they are sold to investors. Here we can see that this did happen, as the decline in equity and balanced funds was recorded, as there were HRK 26.9m and HRK 17.8m more redemptions of stakes (in terms of value), than there were sales. Bond funds managed a slight increase (HRK 2.5m), while other alternative investment funds increased their contributions the most, by HRK 115.9m. So this would mean that despite the decrease in equity and mutual funds’ contributions, bonds, and especially alternative investment funds experienced an increase, leading to overall positive net contributions of HRK 70.9m.

Moving on to the YTD data, we can see that by far, the largest decrease by far was recorded by bond holdings, which lost HRK 2.74bn, or 22.3% of their value. Following them, we have deposits and cash, which lost HRK 1.46bn, or 30% of their value, and shares, which lost HRK 750.9m, or 29.1% of their value. On the other hand, receivables increased by HRK 147.1m, or more than 14x, while the money market holdings increased by HRK 140.6m or 29%.

Meanwhile, looking at the domestic and foreign securities and deposits, overall, they amounted to HRK 14.4bn in September 2022, which is a decrease of 1.1% MoM (or HRK 163.1m), and 22% (or HRK 4.12bn) YTD. Of this, the domestic securities and deposits decreased by 5.9% (or HRK 516.5m) MoM, and 25% (or HRK 2.81bn) YTD, which would mean that they represented 56.7% of the total securities and deposits. On the other hand, foreign securities and deposits increased by 6% MoM (or HRK 353.4m), but also decreased by 17% (or HRK 1.31bn) YTD, meaning that they represented the remaining 43% of total securities and deposits.

Croatian mutual funds AUM structure (September 2022, %)

Source: HANFA, InterCapital Research

Finally, when it comes to the asset structure of the Croatian mutual funds, bonds still account for the vast majority of all asset holdings, at 56.3% of the total, which is an increase of 0.7 p.p. MoM, and 0.1 p.p. YTD. Following them, we have deposits and cash, at 20% of the total, which is a decrease of 2.4 p.p. MoM, and 2.2 p.p. YTD. Next up, we have shares, at 10.8% of the total, representing a decrease of 0.8 p.p. MoM, and 1 p.p. YTD. Finally, investment funds account for 8.3% of the total, which is a decrease of 0.4 p.p. MoM, but an increase of 0.9 p.p. YTD.

Total assets of all Croatian UCITS funds (2015 – September 2022, EURm)

Source: HANFA, InterCapital Research