Croatia is still classified among countries where investing is slightly risky, and its economic outlook is tied to the completion of negotiations on its accession to the European Union, according to the latest report by the credit rating agency Dun & Bradstreet.
In its brief description of the trade and commercial environment in Croatia, D&B mentioned a government-sponsored bill to reduce the size of the grey economy, which is estimated by the World Bank to be as much as 35% of GDP.
"Even the lowest estimates suggest that Croatia's grey economy is significantly larger than the average for Central Europe. Reining in unregistered economic activity will have positive benefits in terms of rising tax revenues, greater consumer protection and a level playing field for law-abiding employers," the report said.
D&B said that it looked increasingly unlikely that Croatia would conclude EU membership negotiations in June, which it said posed a serious risk to the country's accession to the Union in 2012.
"Although Croatia has closed 28 of the 35 policy chapters which aspirant states must negotiate, a report by the European Commission in March warned that much more needed to be done. The main unresolved issues are reform of the judiciary, especially relating to corruption, outstanding war crimes cases and refugee returns, and restructuring and privatising Croatia's ailing shipyards," the report said.
D&B said that missing the June deadline for the completion of EU accession negotiations could have several negative consequences, quoting Italian Foreign Minister Franco Frattini as saying in March that the EU was suffering from enlargement fatigue and that Croatia could be trapped in "a situation of uncertainty" unless it wrapped up its talks in June. The report added that this meant that Croatia could have its entry delayed until its Balkan neighbours were ready.
"Croatia could also miss out on EUR 1.5 bln in EU cohesion funds because in 2012 the EU will finalise its budget for the period 2014-2020; if Croatia is not a member by then, it cannot be incorporated into budgetary calculations and (can) only receive lower, temporary funding upon joining," the report said.
"Positively, the economic risk outlook has improved. Data for 2010 indicate that the economy contracted by 1.2%, less than 1.5% D&B previously estimated. Meanwhile, as a result of the weak kuna, Croatia's external deficits have been declining further: the current account deficit of USD 1.4 bln in Q4 2010 was down by a third in comparison to the same period in 2009, while the trade deficit in January 2011 was 11.8% lower year on year (due to more robust export growth). As such, D&B has raised its growth forecasts to 1.5% for 2011 and 2.2% for 2012," the credit rating agency said, expressing concern about high unemployment.
