Croatia Politics

Croatia

Croatia: Hung parliament threatens to destabilize still-fragile economy

November 26, 2015

Croatia has just emerged from six consecutive years of recession and now faces a precarious political situation that could have important repercussions for the fragile economy. The general elections that took place on 8 November resulted in a hung parliament, with the two most important parties winning exactly the same number of seats. Significant uncertainty remains regarding the outcome of the ongoing coalition talks and whether a majority will emerge. Such political paralysis risks destabilizing Croatia’s economy and will likely slow the ongoing fiscal consolidation and structural reform processes.

Ruling center-left coalition Croatia is Growing, headed by the Social Democratic Party (SDP), gained 59 seats, a 14-seat loss compared to previous elections in December 2011. Opposition center-right Patriotic Coalition, led by the Croatian Democratic Union (HDZ), earned 59 seats as well, improving its position by 15 seats and signaling a clear strengthening of the conservative party. The surprise of these elections was the attribution of 19 seats to the center Bridge of Independent Lists (MOST) party, founded in 2012 and participating in its first major elections.

President Kolinda Grabar-Kitarovic, elected in February 2015 and part of the SDP, is expected to designate a new Prime Minister to form a new government in the coming days or weeks. As neither of the two major coalitions managed to earn the 76 seats needed for a majority in the 151-seat Croatian Parliament, garnering MOST’s support is key to securing a majority and getting Grabar-Kitarovic’s blessing. However, coalition talks have proven difficult so far and no party managed to get signatures from MOST’s members of Parliament yet, with MOST likely planning to present its own candidate for Prime Minister. As forming a government without MOST’s support is improbable and negotiations are stuck, new elections are appearing more and more likely. So far, the most likely outcome is either that a government is formed by the SDP’s coalition, which claims to have gathered support from a couple of minority parties that would bring its backing to up to 72 Parliament members, or that new elections will be held.

Against this backdrop, our panel of analysts expect GDP to rise 0.8% in 2015, which is up 0.1 percentage points from last month’s estimate. The Central Bank also sees the economy exiting recession and expects it to expand 0.5% in 2015. In 2016, the Consensus Forecast panel expects economic growth to accelerate to 1.1%, which is unchanged from last month’s estimate.


Author:, Economist

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