Abstract
The contraction in global credit availability and shrinking export markets in
the eurozone will choke
Croatian growth dynamics in 2009, underscoring our
projection for a recession. Indeed, we have pencilled
in a GDP contraction
of 3.2% for 2009, with the economic recovery of the eurozone instrumental
in
reviving the economy from 2010 onwards. The latest GDP data for Croatia
show the economy continuing
to slow during Q308, further confirming that
the economic downtrend is now firmly in place and will
continue to play
out through 2009.
Unemployment rose in the second half of the year, which
is not unusual following the summer months. It
remains to be seen how far
this will continue into 2009.
We believe that the main dynamics behind the
slowdown in consumer spending during the first three
quarters of 2008 will
remain in place during 2009. In particular, the contraction in credit
availability and
the depletion of refinancing opportunities following
several years of excess liquidity is expected to force
consolidation
within the private sector as households and firms come under pressure to pay
off their debt
liabilities. As a result of deflating asset prices, with
equities and real estate in particular expected to
remain under pressure,
real wealth will fall, further weighing on disposable income and consumer
sentiment.
The impact on the property sector has been predominantly in
development, where the banks’ inability to
provide debt has
significantly delayed, in many cases indefinitely, the majority of
developments in the
pipeline.
On the other hand, with practically no
new stock coming to the market during the next 12 to 18 months,
rents
across all sectors should remain stable or even enjoy some further growth.
This is particularly the
case in the office sector, where vacancy rates
have reached their lowest levels in the past four years and a
certain
level of demand remains.
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