This report reviews key macroeconomic data and microeconomic developments for Croatia published between October 8 and November 7, 2014.

In the beginning of November, the European Commission downgraded its 2014 GDP forecast on Croatia, saying it now anticipates somewhat bigger drop of 0.7% because of the weak domestic demand and business sentiment. At the same time, its lowered its 2015 growth forecast more significantly - to just 0.2% from the previous 0.7%, warning this year's negative trends will prolong also in 2015.

The IMF confirmed its 0.8% GDP drop projection for this year but slightly heightened its next year growth forecast to 0.5%, saying the economy will start to recover. This is more positive than the expectations of local economists who, just like the EC, worsened their projections to 0.6% contraction in 2014 and a tiny increase of 0.2% in 2015, mainly reflecting lower investments and weak exports.

The report also provides details on the early results of the state tender for oil and gas exploration, and on the latest development in the INA case between Croatia and Hungary's MOL. It mentions Croatia's improved ranking in the latest Doing Business Report of the World Bank. The report also reveals the latest plans of the government regarding the privatisation of Croatia Airlines, and the details on the IAP gas pipeline project that will pass through the Adriatic country.

There is also information on the arrest of Zagreb mayor and how it would affect the city's credit rating, on the opposition HDZ party keeping its leading position, according to the latest polls, and on the possible date of the presidential elections in the country.

Key Points:

• Croatia completes second 2014 budget revision, lifting deficit target to 4.8% of GDP. The government cuts 2014 GDP outlook to 0.7% contraction from 0.2% growth. January-August budget gap reported at 2.3% of GDP.

• CPI inflation slowed to 0.2% y/y in September 2014 from 0.3% y/y a month earlier. The working-day adjusted industrial output recovered in September (up 3.8% y/y) after contracting by 4.7% in August The annual growth of the nine months of the year reached 0.9% y/y.

• The unemployment rate climbed to 17.7% in September from 17.5% in August. This was the first increase in the rate after seasonal hiring kept pulling it down in the previous six months. The average net monthly wage rose 0.4% in August following a 0.6% hike in July.

• January-August trade gap shrinks 3% y/y thanks to higher exports. H1 FDI amount to €2.17bn.