The Fitch Ratings agency reported on 6 October that it has revised Croatia's Outlook on its Long-Term Foreign-Currency Issuer Default Rating (IDR) from Stable to Positive, and also affirmed the IDR at 'BBB+' -- after having previously revised Croatia’s rating to ‘BBB+’ in July last year following Croatia receiving green light to join the eurozone on 1 January 2023, Croatian media report.Fitch confirmed Croatia's rating as 'BBB+' on Friday and improved the outlook from stable to positive, and also highlighted a robust cumulative economic recovery from the pandemic shock, placing Croatia at the forefront of the EU, along with reduced public debt.In July of 2022, Fitch upgraded Croatia's debt rating to 'BBB+' with stable prospects following its entry into the euro zone, then in October of that year, they reaffirmed the rating and outlook, but also cautioned that economic growth in 2023 might slow due to inflation and a sluggish eurozone growth.Fitch further improved the outlook from stable to positive, emphasizing that Croatia's economy, driven by the cumulative recovery from the pandemic shock, has risen to the second position within the European Union (EU), as its gross domestic product (GDP) is now 13% higher than in the 4Q2019, although income levels lagged behind the EU average by 27% at the end of 2022. In the next three years, Croatia's economy is expected to grow by an average of 2.7% annually, compared to the expected average growth rate of 1.1% in the euro zone. The main driver of projected growth will be domestic demand, supported by a "stable" increase in real disposable income, while investments will rely on increased inflows from the Next Generation EU (NGEU) fund.Among the risks that could hinder growth, inflation and a slowdown in external demand are highlighted. Public debt, expressed as a %age of GDP, is projected to decline to 62.1% this year, down from 68.8% in 2022, and will be 25 percentage points lower than the highest level in the pandemic year of 2020. This downward trend is expected to continue in the coming years, albeit at a slower pace, with a decrease of two to three percentage points annually, reflecting slower growth in nominal GDP and expected primary surpluses in the balance of payments. By 2027, it is expected to fall below the 55% of GDP level, which is the current median in the 'BBB' rated countries.The budget is expected to record a deficit of 0.4% of GDP this year, significantly lower than what Fitch anticipated in April. They stated, "Budget results were strong in the first half of 2023, as high inflation boosted indirect tax revenues. In the second half of the year, spending will increase due to pension indexation costs, recent support packages, and public sector wage increases."In 2024, budget revenues are expected to weaken due to lower nominal growth and changes in personal income taxation and reduced contributions. However, expenditure is expected to rise due to higher public sector wages, "social spending," and increased capital investments.Fitch also highlights a "moderate" risk of additional spending increases due to elections and project an increase in the budget deficit next year to 1.6% of GDP, followed by a reduction to 0.8% of GDP in 2025. They emphasize that Croatia's rating could be raised if inflation weakens and GDP grows over a longer period.They would also view positively budget consolidation that maintains the downward trend in public debt and structural reforms or positive effects of adopting the euro. Conversely, a lower rating could result from weaker-than-expected economic growth, such as due to a "structural shock in key sectors," "weaker demographics," or persistently high inflation, as it could harm Croatia's "external competitiveness." A continuous increase in the state's general government debt in the medium term, for example, due to prolonged fiscal easing, could also lead to a worse assessment. (ICE ZAGABRIA)

Fonte notizia: HRT and Jutarnji list online edition 7/10/2023