As Adriano Milovan/Novac writes on the 9th of March, 2020, the Italian economy is likely to enter into a recession according to a new rating by the rating agency Moody’s. This is more than likely to hit Croatia negatively and affect the previously predicted Croatian GDP growth.
In their new report on the state of the world economy, Moody’s experts warn that the current coronavirus epidemic will hit the entire global economy, at least in the first half of this year. When it comes to Italy, their new forecasts suggest that Italy’s GDP could fall by 0.5 percent this year when compared to last year, and that’s even when taking a more optimistic scenario into consideration, assuming the situation with coronavirus gets no worse.
However, should the coronavirus situation in Italy continue to escalate further, Italy’s economy could contract by 0.7 percent this year, as new Moody’s forecasts show, warning that the areas hardest hit by coronavirus in the country are in the most developed regions in northern Italy, where more than forty percent of Italy’s entire economic activity takes place.
“The risks of a global recession have increased,” said the Moody’s analysts, who warned of the rapid spread of coronavirus worldwide.
Moody’s analysts haven’t directly addressed Croatia in the report. However, given the strong economic ties between Italy and Croatia, it is already clear that Croatia will also feel the effects of the Italian recession. Italy is one of the most important foreign trade partners to Croatia, and a huge number of tourists come from Italy.
For example, according to the latest available national statistics data, covering the first eleven months of last year, Croatian companies exported goods worth 14.6 billion kuna to Italy, accounting for almost 14 percent of total Croatian exports.
At the same time, imports from Italy amounted to around 23.9 billion kuna, meaning that problems for Italy naturally mean problems for Croatia and the previously predicted Croatian GDP growth. Not surprisingly, many economists fear that the threat of this new recession for Italy could quite easily spill over into the eastern Adriatic coast, especially if the situation with coronavirus doesn’t calm down.
”Croatia and Italy have very developed trade links, entire sectors in Croatia depend on orders from Italy, and Croatia imports a lot from Italy. The slowdown in economic activity in our environment, and especially in Italy, has also led to a slowdown in economic activity in Croatia, and perhaps even a recession. In any case, it’s already clear that the economic growth rates announced in this year will not materialise in our country,” warned Damir Novotny, a respected economic analyst.
”What is already certain is that the planned growth rate of our economy – and we expected Croatian GDP growth of 2.5 percent this year – will not materialise. It’s also clear that the preseason is also out of thr question. However, in the Croatian case the key is the peak of the tourist season, so if the situation with coronavirus soon calms down, the main season may not be affected. In any case, what will happen with our economy in April and May is crucial, since as early as May, it will be possible to assess what sort of main tourist season we can expect,” says Zrinka Zivkovic Matijevic, a macroeconomist at Raiffeisen.
She added that it was too early to predict what would happen in the Croatian, European and world economy by the end of the year. Therefore, she and her team constantly monitor developments and develop various scenarios.
In Croatia and when it comes to Croatian GDP growth or the lack of it, the developments of the situation will depend largely on what happens in nearby Italy, but also here on home terrain, since we have already “imported” coronavirus from Italy, with which, however, the Croatian authorities have so far been far more successful in fighting than their Italian counterparts.
Nonetheless, the coronavirus epidemic is already taking a toll in certain sectors of the Croatian economy and will continue to have negative effects on Croatian GDP growth, with the sectors most threatened being the wood industry, transport and trade, and of course, Croatia’s strongest economic branch – tourism.
Clearly, the extent to which these sectors, and the Croatian economy as a whole, will suffer is yet to be seen given that the coronavirus epidemic is still ongoing and difficult to predict. This may depend on the final assessment of whether we will ”import” a recession from Italy or, in a milder case, economic stagnation.
While macroeconomists warn that the situation is not yet critical, although it remains very serious, Croatian companies are already adding up the damage they have suffered so far as a result of the coronavirus epidemic.
”We’re closely monitoring the developments in Italy. We hope it will leave at least some [free] corridor, at least for some products,” says Petar Simic, owner and director of Primaco, a freight forwarding company.
He adds that Primaco has already introduced maximum driver protection measures, such as the obligation to wear masks and gloves, frequent disinfection, and stopping only in certain places along the road. They have introduced similar measures for those who transport goods to Italy and to other countries, as well as for those in Croatia.
”Still, quarantine for sixteen million people in the Italian north is a new challenge and it is yet to be seen how traffic with Italy will continue,” Simic says.
For more on Croatian GDP growth and the negative effects the current coronavirus epidemic is set to have on it, follow our dedicated business page.
