With Croatian consumers still facing high unemployment and relatively weak credit growth - in tandem with an increasingly poor economic outlook - we see little scope for improvement in the consumer outlook over the coming months. In fact, in October 2011, the country recorded a 3.9% month-on-month (m-o-m) decline in sales excluding automobiles, while retail sales of food, beverages and tobacco slipped 10% m-o-m. Moreover, Croatia's macroeconomic backdrop is expected to remain challenging in 2012, with a forecast real GDP growth of only 0.1% and with low single-digit inflation.
Headline Industry Data (local currency)
- 2012 per capita food consumption = +0.62%; forecast compound growth rate to 2016 = +1.17%
- 2012 alcoholic drinks value sales = +1.12%; forecast compound growth rate to 2016 = +2.40%
- 2012 soft drinks value sales = +2.74%; forecast compound growth rate to 2016 = +4.66%
- 2012 mass grocery retail = +3.82%; forecast compound growth rate to 2016 = +5.03%
Key Company Trends
Imports Continuing to Pressure Domestic Agriculture - According to reports published in December 2011 by local newspaper Vecernji List, domestic pig farmers have suffered due to the rising imports of pork from foreign markets, which will negatively impact on the viability of the local industry. Stjepan Kusec, the president of the association of pig breeders in Croatia, was reported as stating that Croatian consumers favour imports over domestically produced pork.
Agrokor Fails to Purchase Controlling Stake in Slovenian MGR Operator - Leading Croatian conglomerate Agrokor's bid to purchase a 52% stake in Mercator was blocked by the latter's board, reportedly for the time being. Had Agrokor closed the deal it would have been the second major Balkan region food retail deal in 2011, following Belgium-based retailer Delhaize's acquisition of Serbia's Delta Maxi for more than US$1bn earlier in the year.
Key Risks To Outlook
Risks Largely to the Downside - We caution that risks to our 2012 GDP growth forecasts are firmly to the downside, as the country's high exposure to the eurozone sovereign debt crisis poses significant macroeconomic and financial headwinds to the Balkan economy via lower export growth and bank lending. Further tightening the vice on the new government is the high foreign exchange risk. As of January 4 2012, 43.0% of total outstanding debt is denominated in euros, with 22.2% in US dollars. The ongoing weakening of the Croatian kuna against both these units, despite central bank intervention, places