Brexit not expected to have major impact on Croatian economy

Following Great Britain's decision to leave the European Union, the Croatian National Bank (HNB) said on Friday that it was following the situation on the market, that it would continue to keep the exchange rate and the banking system stable, and that the potential long term effects on Croatia would depend on Britain's next moves and the process of its EU exit.

The kuna-euro exchange rate has remained stable despite the increased fluctuation on the financial markets today following Britain's referendum decision, and the yield on Croatian sovereign bonds denominated in the euro has mildly increased, the HNB said in a press release, adding that an assessment of the short term effects of the referendum will be possible when the initial surprise at the referendum's outcome subsides.

The HNB recalled that Croatian-British trade was relatively low, with Croatian exports amounting to EUR 205 million in 2015, or 1.8% of all Croatian exports and 0.5% of Croatia's GDP. Imports from Great Britain stood at EUR 209 million, or 1.1% of all Croatian imports and 0.5% of Croatia's GDP.

In 2015, 490,510 British tourists visited Croatia, accounting for 2,419,237 nights - or 3.9% of all arrivals and 3.7% of all nights last year. In 2011-15, the number of British tourists coming to Croatia doubled.

The potential long term effects of the referendum on the EU and Croatian economies will depend on Britain's next steps, the duration and structure of its exit, the impact on the political dynamic of EU integration, the middle and long terms effects of all those elements on the financial markets, and investor risk, the HNB said.

Domestic experts do not expect Brexit to have a major impact on the Croatian economy.

Brexit will have political and economic consequences, but the British economy will not collapse or suffer a steep decline, the Croatian Chamber of Commerce (HGK) said.

The consequences will depend on the political, financial and economic direction the British government will take in the coming period as well as long term, said Marko Babic, an assistant director at HGK.

Raiffeisenbank Austria (RBA) analysts said that in the 2010-15 period Britain's share in Croatian exports and imports ranged from 1.2 to 1.7 percent, and that Britain's foreign direct investments in Croatia in 1993-2014 was less than EUR 100 million annually.

In 2015, however,  British American Tobacco (BAT) bought the TDR Rovinj tobacco factory for EUR 505 million, although that was a one-off, so Brexit cannot have a significant direct impact on the Croatian economy, RBA analysts said. However, over the next three years BAT plans to invest EUR 30 million in its production capacities, so lower investments in the future could be a secondary effect, they added.

Positive trends in tourism intensified over the past four years, with British arrivals and nights registering two-digit growth rates annually, RBA analysts said. They believe that a short term risk in this respect is limited and that even if the GBP weakened to the euro, loyal British tourists, who have a high purchasing power, are not likely to change their consumer habits in the medium term.

Last update: Fri, 24/06/2016 - 17:12
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