The new Croatian government will have to immediately show its readiness to carry out necessary reforms so as to avert the country's credit rating slide, and this will be a difficult job given the weaknesses of the economy, analysts of the Raiffeisenbank Austria and of the Hypo Alpe Adria bank said on Monday after Croatia held parliamentary elections on Sunday.
According to incomplete results, the winner is the opposition bloc led by the Social Democratic Party (SDP) after the Croatian Democratic Union (HDZ) was in power for eight years.
"The parliamentary election's outcome is the reaction of the public to a long economic crisis and corruption scandals, and shows that people want a change," Zrinka Zivkovic-Matijevic of the Raiffeisenbank Austria economic research directorate told the media on Monday.
"The new government will have to immediately show to domestic and foreign investors and credit rating agencies its readiness to pursue reforms. All reforms, postponed over the recent years, must be immediately launched, or agencies will downgrade our credit rating," she said.
Even with the immediate launch of reforms, positive headway in the economy cannot be expected in the next year, she added.
A tough job is ahead of the winning coalition. The Croatian economy has recently sluggishly recovered from the recession which has been lingering since 2009.
With the eurozone, Croatia's biggest export market, likely plunging again in a recession, there is a danger for Croatia's economy to slip down too, which will render the situation for the new government more difficult.
"The economy is likely to contract by 2 percent in the next year and is facing financial risks owing to the eurozone's debt crisis," Hypo Alpe Adria bank analysts said in a statement.
The poor economic prospects represent a risk for the announced fiscal consolidation, they said adding that the the new government will have to make cost-cutting measures so as to reduce the budget deficit to 3 percent of GDP.
The new government will have only a few months to elaborate details of reforms in order to fend off a possible downgrade of the country's credit rating, they said.
The markets will be pleased with the election's outcome, with the SDP having said that they would consider a possibility of an agreement with the International Monetary Fund so as to ensure reforms and solve a potential problem of restricted sources of financing, they said.
