Croat Economic Recovery Picks Up Pace With Government in Limbo

  • GDP quickens for fourth quarter after six-year recession
  • President calls more talks as no party can form government

Croatia’s economy gathered pace last quarter, though the Adriatic nation’s recovery from a six-year recession faces headwinds after inconclusive elections three weeks ago failed to deliver a government.

Gross domestic product advanced 2.8 percent from a year earlier after rising 1.2 percent in the previous three months, marking four straight quarters of accelerating growth, the statistics office in the capital, Zagreb, said Friday. The revival comes as President Kolinda Grabar Kitarovic seeks a way out of her country’s political impasse. She scheduled more talks for Dec. 7, with no party having sufficient support to propose a prime minister.

Prolonged political wrangling risks undermining the recovery from Croatia’s longest-ever recession, which erased 12 percent of output between 2008 and 2014. The European Union’s newest member faces economic challenges including growing public borrowing and a 2015 fiscal shortfall that’s planned at 4.5 percent of GDP, central bank Governor Boris Vujcic said in a Nov. 10 interview.

“The budget deficit and high debt-service costs don’t leave much time for political experiments,” Velimir Sonje, chief economist at the Arhivanalitika consultancy in Zagreb, said by phone. “Consultations with party leaders may last a while, and that’s not necessarily bad if it leads to a strong political agreement on reform. Any substantial prolongation would lead to financing risks as investors may not react with benevolence.”

Yields Down

The yield on Croatia’s euro-denominated bond due 2025 edged lower to 4.13 percent at 9:55 a.m. in Zagreb, the lowest since Monday. The yield had jumped to a four-month-high of 4.374 percent the day after the election.

The ruling Social-Democrats, which failed to pull the country out of the recession until their last year in office, won 56 of parliament’s 151 seats at the Nov. 8 election, while the opposition Croatian Democratic Union, known as HDZ, won 59. That left an alliance of local factions called Most, which pledges to reduce red tape and trim Croatia’s bureaucracy, in a kingmaker position.

Negotiators from the two biggest parties, which have dominated the former Yugoslav republic since independence 25 years ago, say they could accept most of Most’s proposals. Once the president picks a premier backed by most elected deputies, the candidate has two months to clear a confidence vote before a new election is called. The constitution doesn’t prescribe how long parties have to garner a majority.