BMI View: We forecast positive growth this year at Croatia's main port, the Port of Rijeka, both in terms of tonnage and box throughput. While tonnage growth looks set to plateau at a steady 3%, we see relatively high box throughput growth tapering off in the medium term. Growth in the shipping sector remains hampered by Croatia's poor economic outlook as one of the worst performing eurozone economies. BMI's forecast for the economy puts 2015 GDP growth at 0.3%, although this will rise marginally in 2016 to 1.0%.
Steady Growth At Rijeka In Short Term
We have revised up our forecasts for the Port of Rijeka up from last quarter, at 2.7% for tonnage throughput and 8.2% for box throughput now expected in 2015. However, in the medium term stronger growth this year could be slightly misleading, as in tonnage terms it looks set to plateau while in box throughput our previously more positive growth forecast looks set to drop by around half by 2019. Our outlook for growth at Croatia's other ports is even less rosy in the short term. Tonnage at the port of Sibenik will post similar growth to Rijeka, although the outlook for the Port of Ploce shows very marginal tonnage growth and a contraction of 2.3% in container throughput, although in all areas at these two ports growth looks set to stay on a slow but upward trajectory in the medium term.
For 2015 we continue to forecast GDP growth of 0.3%, edging up our forecast slightly in outlook for 2016, at 1.0%. However, Croatia remains vulnerable in a stand-still scenario. Lower oil prices and a gradual eurozone recovery, particularly after the recent avoidance of a 'Grexit' scenario, continue to work in Croatia's favour. However, with elections scheduled for early 2016 the current centre-left government will be unlikely to target ongoing productivity problems in the Croatian economy in the very short-term. Wages are likely to remain high (at least by regional standards) and exports will remain relatively expensive, leading investors to avoid export-oriented industries.
Headline Industry Data
In 2015 the Port of Rijeka tonnage throughput will grow by 2.7% to reach 9.269mn tonnes, after 3.9% growth estimated in 2014. In the medium term we project average annual growth of 3.5%.
We forecast container throughput at the port to grow by 8.2% in 2015, up 3% from our forecast last quarter although still down from 13.0% growth in 2014. At this rate of growth, throughput will reach 207,709TEUs in 2015. We expect annual growth to 2019 of 5.9%.
Our total real trade forecast for Croatia in 2015 is 2.3%, revised down slightly from 2.9% last quarter.
Key Industry Trends
Government Declares LNG Terminal 'Strategic Investment': In July the Croatian government declared the construction of a liquefied natural gas (LNG) terminal on the island of Krk at 'strategic investment' project for Croatia. The project is expected to cost EUR600mn (USD653mn). The government hopes the terminal will have a positive effect on economic growth, development, employment and local industries, and has aligned the project with strategic EU and Croatian documents. By declaring the project to be of strategic interest, the procedures for obtaining location and construction permits should be greatly simplified, as the current law on strategic investment projects makes it possible to expedite all official procedures and treat them as a priority. Construction on the terminal is expected to start in mid-2016 and to last three years. The creation of the LNG terminal could solidify Croatia's position as a regional energy player and would contribute significantly to tanker demand and throughput in the country.
Croatia Seeks Investors For Adriatic LNG Terminal: The joint venture between Croatia's power utility HEP and gas transmission system operator Plinacro, named LNG Croatia, has begun inviting investors to express interest in building the planned LNG terminal on the island of Krk. Potential investors can submit letters of interest for joining the project as soon as possible. Applicants who meet the criteria will be admitted to a virtual data room that will open on September 1, while the deadline for submitting investment proposals is December 15. The terminal, which is part of an ongoing drive for Croatia's energy independence and will open up links with European countries such as Poland, is expected to entail an investment of around EUR600mn (USD653mn).
Tankerska Next Generation Adds Sixth Vessel To Its Fleet: Tanker owner and operator Tankerska Next Generation (TNG) has added a sixth vessel to its fleet by taking over a 50,000 dwt at SPP Shipbuilding in South Korea. The tanker was acquired through the purchase of York Maritime Holding IV and is expected to join TNG's fleet in the fourth quarter of 2015. TNG already has another tanker under construction at SPP Shipbuilding - Dalmacija - which is also expected to be delivered in the final quarter of this year. The company reported a profit of USD2.7mn in the first half of 2015, driven by USD43.04mn in vessel revenue, with EBITDA of USD18.2mn.
Key Risks To Outlook
Although the Croatian economy looks set to post positive growth of 0.3% in 2015, there is a chance that the country could remain in recession this, with such small growth leaving it in a vulnerable position with only a minor shock needed to provoke a recession. The government does not seem to be taking the steps needed to tackle competitiveness in the economy, which remains one of the core long-term obstacles. Risks could also heighten if consumer spending deteriorates any further and, although not our core view, any further downturn in the eurozone, particularly affecting Italy and Slovenia, could hold back already fragile and weak export growth.