Croatia joining 'A' rating club

Erste Bank Research Team Erste Bank

Domestic demand driving GDP growth.

ECB: next interest rate cut in October.

S&P delivering anticipated rating upgrade.

Weaker dollar expected.

GDP remained in solid gear in 2Q24, adding 3.3% y/y and 0.8% q/q s.a. Domestic demand continued to push strongly, with private consumption adding 6.1% y/y and investments maintaining double-digit growth (12.9% y/y), while net exports remained a drag. Going forward, domestic demand is anticipated to maintain supportive momentum, reflecting strong labor market fundamentals on the consumption side and EU fund backing on the investment side. Exports should deliver a steady tourism footprint, but weak EU growth keeps weighing on a stronger goods export recovery. We maintain our FY24 call at 3.4%, with risks tilted modestly to the downside.

Inflation kept a moderating trend amid supportive supply-side factors. Demand-side pressure continues, fueling above-EU average inflation, with the average CPI in 2024 landing close to 3%. The budget gap is expected to slip to 2.5% of GDP in 2024, reflecting pre-election generosity. In anticipation of the 2025 budget, a stronger consolidation effort seems unlikely at present. S&P delivered a strong message with a rating upgrade to ‘A-‘ and even more so with the outlook remaining unchanged at positive. The latter signals an increasing likelihood of another upgrade in the 1-2 year horizon. Fitch and Moody’s are likely to act in a similar fashion.

GDP (real,y/y)

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Erste Bank Research Team

Erste Bank

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