The infrastructure sector dominates Croatia's construction industry and growth has outperformed the residential and non-residential segment according to the latest official data. The government's pledge to inject EUR13bn into the country's infrastructure sector and Croatia's accession to the EU in July 2013 clearly creates room for optimism. European development funds will continue to flow over the long term, supporting our forecasts, and private concessions as a means of building and operating infrastructure are gaining traction. This should see greater private involvement in the development of the country's infrastructure, which provides upside to our forecasts for industry growth.
Contributions to the forecast include:
- Following the EU accession, we expect infrastructure activity to speed up, as the country now has access to funding in order to support such projects. The European Investment Bank (EIB) estimates that it has provided some EUR2.5bn in loans (including current loans) to Croatia since 2001, to help implement projects that will support its accession.
- Croatia's infrastructure sector is set to garner investor attention as the government prepares to sell-off around 1000km of motorways in the form of 30-50 year concessions. The government hopes that EUR2.9bn can be raised through granting the concessionary operation of the Bregana - Zagreb - Lipovac, Zagreb - Split - Ravca, Zagreb - Rijeka, and Zagreb - Gorican motorways.
- The airports sector is also seeing a fair amount of growth with the expansion of the Dubrvovnik and Zagreb airports. We have adjusted our airport infrastructure industry value forecasts upwards to account for the construction of these two projects.
The economic conditions in the country will not be conducive to a robust recovery. According to BMI's Country Risk team, the modest recovery in private consumption will be insufficient to drive a significant economic recovery in Croatia in 2014, with fiscal consolidation and weak investment spending set to weigh on headline growth.
Croatia's business environment remains a strong point for the country, placing it ahead of Hungary, Slovakia and Romania. However its score has retracted following a downward revision of our historical data and moderation in growth expectations. The country now scores only 35 out of 100 for Industry Rewards, indicative of the small scale of the industry and limited growth prospects. The reforms the country put in place in preparation for its EU accession although have bolstered its low risk credentials, which in turn sustains its scores to the middle of the regional table.