With EU accession prospects taking a hit from the ongoing land dispute with Slovenia and with theeconomy heading into a deep recession, Croatia's woes were further compounded by the shockresignation of Prime Minister Ivo Sanader. The leader of the main coalition partner, the CroatianDemocratic Union (HDZ), announced his resignation on July 1 halfway through serving his second termas prime minister. What is more, Sanader gave no indication of the motivation behind his decision anddespite claims from some critics that he was positioning himself to run for the presidency in 2010, he hasvowed to end his political career.
Croatia is undergoing a period of military rationalisation and modernisation. Defence spending increasedslightly both in 2007 and 2008, and is expected to continue rising through to the end of 2012. However,defence expenditure both as a proportion of government outlay and of GDP is declining and a great dealof the defence budget is devoted to personnel costs and to compensating those laid off due to militarydownsizing. Croatia's defence force will be conscript-free by the end of 2009. Beyond the territorialdispute with Slovenia, Croatia faces little threat of external conflict and enjoys strong internal stability. Itsmain security priority is to prevent the transhipment of contraband through its territory as a condition ofEU entry.
The economy is now deep in recession. Having expanded by 0.2% year-on-year (y-o-y) during the fourthquarter of 2008 (and posting a full-year expansion of 2.4%), Croatia finally plunged into recessionterritory during Q109, with real GDP contracting by 6.7% y-o-y over the first quarter. We expect worseheadline data in Q209 (and potentially Q309) as consumers continue to tighten their belts and tourismarrivals plummet amid a deep and protracted eurozone recession.
For Q409, BMI has updated the methodology of its Terrorism Rating and expanded it to cover 170 globalcities, as well as 130 states. As before, the Terrorism Rating incorporates our analysts’ qualitative view ofthe terrorist threat. However, it also incorporates secondary analysis of data on global terrorist incidentsobtained from the US State Department’s Worldwide Incidents Tracking System (http://wits.nctc.gov/), toprovide a quantitative assessment of the risks.
The composite security risk rating for Croatia is 64. Notable is Croatia’s Criminal Rating which at 37illustrates the high level of organised criminal activity in the region to which Croatia is susceptible.
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