ZAGREB, 3 July 2022 - Croatian National Bank (HNB) governor Boris Vujčić said on Sunday he expected growth of over 5% this year, significantly more than currently forecast, and that a possible stoppage of gas deliveries could lead to a recession next year.

Speaking at the opening of the HNB's 28th economic conference in Dubrovnik, he said the growth rate in Q1 was 7% and that in Q2 it could be higher.

In Q3 we have very good bookings in tourism, so a better season can be expected than in the record year for tourism, 2019, "not so much because of more arrivals as because of higher prices by as much as 40%," Vujčić said.

Three quarters will be very good and economic growth can be expected to slow down in Q4, he added.

The biggest risk is neither inflation nor interest rates but the energy market situation, with a possible stoppage of gas deliveries, which could lead to a recession in 2023, Vujčić said, adding that the HNB expected inflation to continue to increase by the middle of this year and the 2022 inflation rate close to 10%.

The inflation in Croatia as well as other countries is primarily a consequence of energy and food price rises, and energy prices depend to a large extent on the war in Ukraine, although they began rising before that, he said.

As long as the situation is such, it's difficult to expect energy price growth to calm down, although the base effect will change, he added. 

During the pandemic crisis, energy prices were at a historical minimum and are now rising because of increasing demand and economic recovery, the war in Ukraine causing additional pressure, Vujčić said, adding that it was up to the government to decide which instruments to use to impact food and energy prices.

"The longer this crisis lasts, the emptier the bag with those instruments," he said, adding that it was in Croatia's interest to change to the euro with the smallest impact on prices and that due to the high inflation, the effect would be marginal.

A bigger concern is the rise in energy and food prices for other reasons, Vujčić said.

"The effect is already positive because of the announced change of the rating and on the financial market because at the moment Croatia has lower financing and borrowing costs... The markets have incorporated that in interest rates. In EU countries outside the euro area, interest rates are much higher than in Croatia."

The long period of low and negative European Central Bank interest rates caused the money to move to the real estate sector, which contributed to the rise in property prices, Vujčić said.

"A large part of that rise does not come from loan-financed buying, About 50% of all transactions are without loans, so there is no major risk for the stability of the banking system," he said, adding that due to the rise in prices, real estate was less affordable for young people and first-time buyers. "The rise of interest prices will reduce the pressure on the real estate market."

The Dubrovnik conference will discuss post-pandemic crisis challenges and focus on inflation.

Vujčić said that since Croatia would join the euro area on 1 January 2023, the conference would also discuss European fiscal rules, monetary policy, and the expected interest rate growth as well as "problems in supply chains, which lead to price rises and production standstills, and the energy crisis as a consequence of geopolitical tensions and the war in Ukraine."

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ZAGREB, 7 June 2022 - Inflation in 2022 could reach 9%, which is higher than the current IMF estimate of 6%, Croatian National Bank (HNB) Governor Boris Vujčić said at the conference "Eurotransformation of Croatia", organised by Motus Media Group in Zagreb on Tuesday.

Inflationary pressure has been growing by the month, notably food prices, and the world, including Croatia, is faced with the first major wave of inflationary pressure after many years, Vujčić said.

"The invasion of Ukraine and sanctions against Russia have worsened global expectations of growth and inflation," he said, noting, however, that price growth had been recorded also before the war in Ukraine.

The upward revision of inflation projections is largely due to higher prices of oil and raw materials, which is why inflationary pressure continues to be strong, he said.

In April, the HNB revised this year's average inflation rate forecast to 5.2% after 2.6% in 2021.

Vujčić believes that Croatia's GDP growth rate this year will exceed the 2.7% forecast by the IMF. He also expects GDP growth to be strong in the second quarter of this year as well.

Most central banks in the countries outside the euro area started tightening their monetary policies already in 2021, but the HNB did not do it because Croatia is on the road to euro area membership, he said.

"The price of borrowing for Croatia has grown much less than in the countries that are not in the euro area," Vujčić said, adding that the spillover effect of the stricter conditions of financing on market interest rates was particularly evident in Hungary and Poland.

Prices of commodity imports are growing faster than prices of commodity exports and trade conditions have been deteriorating, which increases the foreign trade deficit, he said.

"Real economic activity in Croatia is nonetheless above the pre-crisis level, with growth concentrated in the services sector," Vujčić said, noting that positive trends in the national tourism sector could compensate for the negative impact of the more expensive energy products.

Personal consumption is expected to increase in Croatia in the coming period, he said, noting that euro introduction would not lead to significant price increases because the level of prices in Croatia is already relatively high, especially for food and telecommunication services.

Marić: Negative effects of euro introduction largely non-recurring 

Finance Minister Zdravko Marić said that the negative effects of euro introduction would be largely non-recurring, adding that in order to avoid most of them, one should communicate the process to citizens as well as possible.

The current inflation has nothing to do with Croatia's accession to the euro area, Marić said, repeating that the conversion exchange rate would probably be at the level set upon entry to the European Exchange Rate Mechanism II, but that it was possible it could be slightly different.

Marić said that he had talked to representatives of the retail, tobacco, and other sectors with regard to the rounding off of prices due to euro introduction, noting that cigarette prices in the European market had been rounded to the nearest 10 and not the euro cent.

"We will be monitoring the retail sector, notably food prices," he said, adding that prices in the hospitality sector and tourism would be closely followed as well.

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ZAGREB, 17 Jan 2022- Croatian National Bank Governor Boris Vujčić said on Monday that inflation might be the most serious potential "cost" of introducing the euro, however, this year, that influence on the total inflation rate could be less than 10%, so he believes this isn't something to be overly bothered about.

Vujčić added that the rest of the inflation will be generated from entirely different sources, primarily the prices of energy. He expects that the first half of this year will see strong inflationary pressure whereas "deflating" is expected in the second half.

Vujčić said that the best prevention against prices increasing is competition, adding that state intervention is only justifiable where monopolies exist. In the months prior to and after introducing the euro, consumers have to avoid those who increase their prices and buy from those who don't, he said, believing that the best protection against price increases is showing prices in both kuna and euro.

With regard to losing monetary sovereignty once Croatia enters the euro area, Vujčić recalled that the central bank has been maintaining a fixed exchange rate since the 1990s.

Hence, it is not using it actively as a monetary policy instrument, considering that a 10 percent depreciation of the kuna against the euro, due to the high level of ''euro-zation'' of the economy and households, the debt for all sectors in Croatia would increase by more than HRK 50 billion whereas appreciation of the kuna would disrupt the Croatian economy's competitiveness, that is exports, said Vujčić.

He revealed that fairly reliable data indicate that citizens are holding as much as HRK 36 billion in cash. He called on citizens to deposit cash in banks which would facilitate conversion once Croatia enters the euro area.

(€1 = HRK 7.5)

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