Weak recovery on the cards
Croatia's main maritime hub, the Port of Rijeka, will see low bulk tonnage growth this year, with a slightly stronger expansion of container traffic. Performance at the ports of Ploce and Sibenik will be mixed, with container throughout at the latter falling. The reason for this disparate performance will be the weak state of the domestic economy and the country's poor foreign trade showing. After estimated strong growth in 2014, we expect foreign trade expansion to ease back again in 2015.
We have edged up our growth forecast for the Croatian economy this year, but it remains a stand-still scenario. Consistent with a run of year-on-year contractions since 2009, GDP again fell by 0.4% in 2014. For 2015 we now predict growth of 0.3% (up from 0.1% previously), with the pace of expansion rising marginally to 1.0% in 2016. Positives include the effect of lower oil prices and the gradual eurozone recovery. But the numbers are in keeping with our view that Croatia is caught on a low-growth trajectory unless and until the government finds a way of tackling the serious competitiveness issues facing the economy. Croatia is amongst the least competitive economies in the EU, labour laws are overly restrictive, and the country's bureaucracy is cumbersome and bloated. A key problem is that much of the work force receives relatively high salaries for low-productivity jobs, With elections due in early 2016 the ruling centre-left government will be unwilling to take unpopular measures to improve productivity. This implies wages will remain high by regional standards, Croatian exports will be relatively expensive, and overseas investors will steer clear of investing in any export-orientated industries.
Headline Industry Data
In 2015 port of Rijeka tonnage volume will grow by 1.7% to 9.178mn tonnes, after 3.9% growth in 2014. Over the medium term to 2019 we project average annual growth of 3.0%.
Container throughput at Rijeka in 2015 forecast to grow 5.2% to 201,911 twenty-foot equivalent units (TEUs). Over the medium term we project a strong average annual increase of 7.0%, significantly ahead of GDP.
2015 total trade forecast to grow by 2.9% in real terms, down from of 4.4% in 2014.
Key Industry Trends
Big Box Ship Visits Adriatic Gate: The Adriatic Gate Container Terminal (AGCT) facility at Croatia's Port of Rijeka, operated by Philippines-based International Container Terminal Services, Inc. (ICTSI), has received the largest box ship to visit the country, the 10,000 TEUs Gerda Maersk. The box ship is operated by the 2M Alliance between Maersk and Mediterranean Shipping Co (MSC) on the Far East service, which operates a total of 15 ships. The rotation starts from the US West Coast and passes through the Pacific, making regular port calls in Busan, South Korea and key ports in the Far East, Middle East and the Adriatic: Shanghai, Hong Kong, Chiwan, Singapore, Port Said, Koper, Trieste, Rijeka, Port Said, Tanjung Pelepas, Vung Tao, Yantian and Ningbo. The service includes calls to three north Adriatic ports Koper, Trieste and Rijeka once a week - with Rijeka as the destination on Thursdays, opening up opportunities to attract additional cargo from Central and Southeast Europe. 'I am very proud to be here today, having the honor to welcome the largest vessel not just in the history of Adriatic Gate Container Terminal, but in the whole Port of Rijeka. This event will certainly be long remembered in the development of Rijeka not just as a port but also as a gateway,' said Alessandro Becce, AGCT CEO.
Poland LNG Agreement Could Boost Tanker Demand: Croatia and Poland said they plan to link their liquefied natural gas (LNG) terminals by 2020 to boost energy security. 'The cooperation between our countries in connecting LNG terminals into the North-South gas pipeline corridor is crucial for the region's energy security,' Croatian Economy Minister Ivan Vrdoljak said at a news conference in Zagreb after meeting with Polish Treasury Minister Wlodzimierz Karpinski. Croatia plans to build an LNG terminal on the island of Krk by 2019 at an estimated cost of EUR1bn (USD1.2bn). Poland may spend USD1.3bn to build the corridor after opening its LNG facility in Swinoujscie next year, Karpinski's spokeswoman Agnieszka Jablonska-Twarog said. Croatia consumes about 3 billion cubic meters of gas a year, while its domestic production satisfies about 65 percent of its needs. Poland, which buys as much as 10.2 billion cubic meters of gas a year from Russia or two-thirds of the country's consumption, earlier raised import capacity from the European Union as part of its strategy to diversify supplies. The Krk-based LNG terminal is expected to have annual capacity of 4 to 6 billion cubic meters. The chances for the Balkan country to become a regional LNG player are now bigger after Russia scrapped a USD45bn Black Sea pipeline to carry gas to Europe through the South Stream project, Vrdoljak said
Croatian Shipyard Lands Order: A subsidiary of Uljanik d.d. of Croatia has won a contract from Algoma Central to build two new Equinox Class 650 foot self-unloading dry bulk lake freighters. The Canada based shipping company, which operates on the Great Lakes - St Lawrence Waterway - said the order, plus the purchase of a third vessel, the Gypsum Integrity (which is to be renamed the Algoma Integrity) had brought its investment in its domestic dry bulk fleet renewal programme to USD560mn. 'We are looking forward to the arrival of the new Equinox 650 Class ships, the second phase of our domestic fleet renewal,' said Ken Bloch Soerensen, president and CEO of Algoma. 'The specialized service needs of certain of our customers require the size and type of vessel that Algoma has consistently provided.' The two new Equinox Class ships will serve a range of customers with particular focus on salt and aggregates industry shippers. The first ship is expected to enter service early in 2017, with the second ship to follow later that year.
Key Risks To Outlook
There is a risk that Croatia will remain in recession in 2015, for a seventh consecutive year. Shaky household spending could easily deteriorate, and although not our core forecast, any further downturn in the eurozone (particularly Italy and Slovenia) could hamper already-weak export growth. A further risk is that the government's fiscal consolidation efforts could be too aggressive. Any of these factors could be enough to prevent the economy from growing in 2015. Given that we forecast only modest positive real GDP growth in our core scenario for Croatia, it would only take a minor shock to keep the country in recession in 2015.