“One of the key questions in Croatia right now is the upcoming parliamentary elections,” begins Mate Lovric, Partner at Lovric Novokmet Smrcek. “They will either occur in July or sometime this fall (although July seems more likely). The current government would prefer them to be earlier, when the memory of successful measures against the COVID-19 crisis is still fresh, while the opposition would like to see them as late as possible, of course.”
Lovric says that it is difficult to know how to distinguish the “measures to battle the crisis and those that serve election purposes.” In the meantime, Croatia’s numbers look relatively good – at the time of writing, there had been only 2221 confirmed cases (compared, for instance, to 10,374 in neighboring Serbia).
However, he says, the low numbers are not a reason for absolute joy. “Our tourism sector is poised to take a huge hit – some say as much as a 70% reduction from last year, and with it impacting around 20% of our GDP, it doesn’t seem stellar.” Lovric says that the projected numbers for GDP contraction are “between nine and ten percent, and even with the bounce-back that’s likely to occur next year, it will be difficult for us to be where we were in 2019.” He says that the biggest problem tourists face – aside of course from potentially contracting the virus – is the fact that “most of them would have to go into self-isolation upon leaving Croatia, as most countries from where tourists come to visit us are requiring.”
“One of the most prominent measures that the government has undertaken,” Lovric continues, “is the three-month cover of minimum wage employees’ salaries. A lot of lawyers and even some of the high-end, top-tier law offices in Zagreb applied for this, which only goes to show how much all markets have been impacted by the economic blowback of the crisis.” Indeed, he says, M&A transactions have slowed significantly, “especially when you compare the current numbers to Q1."
On the other hand, Lovric says that “one of the upsides of the crisis is the switch to a more digital dealing with administrative and regulatory bodies.” He reports that “many institutions, like the tax authority, took part in this transformation, and hopefully this will last and become a norm from here on out.” He also praises the three-month freeze of enforcement and bankruptcy deadlines.
Finally, Lovric says that while Croatia has done well for the time being, “it is a huge question as to whether these measures will be possible, even, if a second wave of the epidemic strikes.” He says that Croatia experienced a negative VAT flow in April for the first time in the country’s history and that the markets are still “scared.” According to him, “there have been a lot of bad things, not only the virus,” pointing also to the earthquake that hit Zagreb, the country’s capital, in March. “The next three months will be crucial, to see where we are, what’s going on with the tourist sector, with remittances, and to just figure out the best way forward,” Lovric concludes.