Croatia’s Economy to Shrink 1.7% in 2012 on Exports, Fitch Says

Croatia’s economy will probably contract 1.7 percent this year as Europe’s debt crisis hinders export growth, Fitch Ratings said.

Croatia, which is set to join the European Union in July 2013, is struggling to revive its economy after three years of recession or stagnation. Fitch on Sept. 5 revised the country’s outlook to stable from negative, citing the government’s progress in meeting spending-cut demands and sticking to its budget targets during a recession.

The Adriatic Sea nation’s “inability to return to growth since the 2008 crisis” poses a threat to the country’s fiscal consolidation efforts and may hinder its efforts to reduce debt, the credit rating company said today in an e-mailed statement from London.

Fitch, which affirmed the long-term foreign issuer default rating at BBB-, said the government needs to increase the labor participation rate, which at 50 percent is one of lowest in Europe, according to the International Labor Organization in Geneva.

The World Bank estimated Croatia’s economy will shrink 1 percent in 2012, while the central bank said it will decline 1.6 percent.

Croatia’s rating, Fitch’s lowest investment grade, is on par with Latvia and Bulgaria.

To contact the reporter responsible for this story: Jasmina Kuzmanovic in Zagreb at jkuzmanovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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