ZAGREB, November 14, 2019 - The Croatian parliament on Thursday adopted the state budget for 2020 with 80 lawmakers voting in favour, 41 against and one abstention.

The budget, proposed by the government, plans 145 billion kuna on the revenue side and 147 billion kuna on the expenditure side, and a majority of government departments can expect a rise in their funding from the state budget.

The budget has been prepared with the assumption that Croatia's economy will grow 2.5% in 2020.

The government plans 6.7% higher revenues in comparison to the original 2019 plans, that is 5.4% more in comparison to the revised budget which was also adopted by the parliament today.

The expenses in the next year's budget are higher by five percent, that is by seven billion kuna, in comparison to this year, and by 8.3 billion kuna in comparison to the revised budget in 2019

As a result, the projected budget gap in 2020 is put at 2.15 billion kuna, accounting for 0.5% of Gross Domestic Product.

HDZ party whip Branko Bačić said on Thursday that the vote on the state budget earlier in the day showed how strong the ruling majority in the parliament was, stressing that he did not share the view that the budget did not include striking teachers' demands.

"The documents that had to be adopted were adopted by a majority of more than 80 votes, which proves the strength of the ruling coalition and the HDZ group. I don't think that the budget does not include education-sector workers' demands for a six percent wage increase because the government did secure funds for that increase. You would not be able to tell from the budget if it refers to an increase in the base wage or an increase in the job complexity index because the total amount of the increase is as demanded by the education-sector unions and next year each teacher and employee in the education sector will get a wage increase as demanded by the unions," said Bačić, adding that therefore there was no longer any reason for the unions to continue striking.

Commenting on the European People's Party (EPP) decision not to hold sessions of its Presidency and Political Assembly in the Croatian Parliament on November 20 and 21, as originally planned, but at a different venue in Zagreb, Bačić said that the EPP did not want to cause any inconvenience either to its members or the HDZ, and that it wanted to avoid creating the impression that the Croatian Parliament was leased to a political group.

Bačić said this was not about giving in to demands by the opposition in the Croatian Parliament but about a proposal and decision by the EPP, made in agreement with the HDZ, so that the planned political event could be held in a pressure-free atmosphere.

The EPP, the strongest political group in the European Parliament, will for the first time hold its electoral congress in Zagreb on November 20-21. The event is hosted by HDZ leader and Prime Minister Andrej Plenković and EPP President Joseph Daul. More than 2,000 delegates from some 40 countries will be discussing current European policies. The EPP congress will elect a new EPP leadership.

More budget news can be found in the Politics section.

ZAGREB, November 14, 2019 - Croatia's real GDP growth picked up in the third quarter of 2019, the Croatian National Bank (HNB) said in a statement from a meeting of the HNB Council on Thursday.

The HNB Council discussed a report on the latest economic and monetary trends and adopted a semi-annual report on the financial situation, the degree of price stability and the implementation of monetary policy in the first half of 2019.

According to available monthly indicators, real GDP growth accelerated in the third quarter of 2019. Following stagnation in the second quarter, unemployment continued to decrease, while employment growth slowed. In the third quarter, nominal wage growth picked up slightly, with wages in the public and private sectors increasing, the central bank said.

The annual consumer price inflation rate in September remained at August's level, at 0.8%.

Financing costs mainly continued to decrease, also thanks to the accommodative monetary policy stance. The annual rise in bank lending slowed to 3% at the end of September as a result of a decrease in corporate lending.

In the second quarter of 2019, the general government budget ran a surplus of slightly under 2.5 billion kuna, an increase of 200 million kuna compared with the same period in 2018. The strong revenue growth, backed by the favourable effect of growth in personal consumption and imports as as well as the greater use of EU funding, was offset by roughly equal growth in expenditure, the HNB said.

More news about Croatian economy can be found in the Business section.

ZAGREB, November 12, 2019 - Remittances by Croatian citizens living abroad are close in amount to net tourism revenues and represent a very stable source of financing, but Croatia must generate an innovative economy to motivate them to generate those earnings in Croatia, economist Mladen Vedriš said on Tuesday.

He was speaking at the "Returnees and economic development" conference.

Over 2 billion euro in informal remittances, gifts, aid and pensions go into Croatia's balance of payments, according to the central bank, and the trend is rising, but the question is how much the people who have formed families abroad will feel the need to continue to send remittances, Vedriš said.

In tourism, only beds are a domestic resource and 70% of what we sell is imported, he said, adding that investments to motivate workers to return to Croatia could and must be found.

According to the findings of Zagreb Faculty of Humanities and Social Sciences surveys, 65% of those who left Croatia cited a poor financial situation as the main reason. Others are dissatisfaction with the situation in the country, widespread corruption, intolerance, poor work of state institutions and poor living conditions.

Return is possible only if decent living is made possible because only one in five emigrants refuse the possibility to come back, Vedriš said.

He cited German surveys showing that the education of one person through university graduation costs the state 260,000 euro on average, which is just one aspect of the brain drain. One engineer generates during his working life about a million dollars in new value which stays in Germany, and half of those who have left Croatia have university degrees.

Vedriš also cited Greek surveys showing that those who left the country took 12 billion euro in value with them and estimated the same applies to Croats working abroad.

The director of Germany's Konrad Adenauer Foundation for Croatia and Slovenia, Holger Haibach, said the conference was the result of an agreement with Croatia's Ivo Pilar Institute to jointly consider relations between governments, education, migration and similar issues given that 400,000 Croats live in Germany.

Haibach said the conference was a continuation of yesterday's panel "Remigration and circular migration as a cohesion strategy" as well as part of a series of events called "Talking Europe II 2019-2020", which are aimed at encouraging public debates on the EU's current challenges and future prospects ahead of Croatia's presidency of the Council of the EU in the first half of 2020.

More diaspora news can be found in the dedicated section.

ZAGREB, November 7, 2019 - The European Commission on Thursday mildly revised down Croatia's growth outlook from the initial 3.1% to 2.9% in 2019, due to a slower growth rate in the country's main trading partners, and in the next two years, the EC expects investments to robustly rise in Croatia, alongside a record low employment rate and a declining public debt.

"As growth in Croatia’s main trading partners moderates, domestic demand will remain the main driver of economic activity," the EC says in its latest document called "European Economic Forecast for 2019, 2020 and 2021".

"Household consumption remains strong, driven by growing employment and wages as well as low inflation. Investment is set to continue growing strongly, backed by EU funds, and government consumption is also expected to support growth. The economy should continue adding jobs, but at a slower pace as labour shortages appear in some sectors," reads the document's section on Croatia.

The Commission also expects Croatia's the debt ratio "to continue declining steadily as the general government balance turns from mildly positive to neutral."

In 2020, Croatia's growth is set to rise at a rate of 2.6% and in 2021 by 2.4%.

In the previous document, the growth was projected at 2.7% both in 2020 and 2021.

The investment growth is projected at robust 8.8%, whereas in 2018, it was 4.1%. In 2020 the investment growth rate is projected at 7.5% and in 2021 at the rate of 7.2%.

"Driven by the rising uptake of EU funds by both the public and private sectors, investment growth is expected to record growth rates above those observed since 2015 throughout the forecast period. Furthermore, favourable financing conditions should remain supportive of private investment."

The Commission notes that economic activity in Croatia regained momentum in the first half of 2019, after a weaker-than-expected performance towards the end of 2018.

"Real GDP rose sharply in the first quarter, by 1.5% quarter-on-quarter, followed by more moderate growth in the second quarter, at 0.2%. Based on high frequency indicators, growth is expected to remain moderate in the second half of the year, bringing the forecast for 2019 to 2.9%.

Domestic demand is driven by strong household consumption and is supported by public consumption and investment, which benefits from increasing use of EU funding. Despite a recovery in exports, net exports are set to negatively contribute to growth due to the strong performance of imports.

"Throughout the 2019-2021 period, domestic demand is forecast to remain the main driver of GDP growth. Ongoing improvements in the labour market, rising wages and low inflation will continue to drive household consumption. A stronger contribution from public consumption is expected, driven by rising intermediate consumption and increasing public sector wages."

The Commission also projects that overall, Croatia's trade balance is expected to deteriorate throughout the forecast period and the current account balance is expected to gradually decrease to 0.3% of GDP by 2021.

"In 2019, the general government balance is expected to remain in surplus for the third year in a row," says the Commission.

"Revenues are performing strongly in spite of tax cuts, which particularly affected revenue from VAT and social contributions. Expenditure grows primarily due to wage hikes in the public sector, investment and intermediate consumption.

"In 2020-2021, tax revenue is expected to grow at a slower pace than nominal GDP, due to further tax cuts. EU funds are projected to continue supporting revenues as the programming period enters its most mature stage."

"Expenditure growth should continue in 2020 and moderate somewhat in 2021, largely due to the strong base effect of the rising wage bill, investment and capital transfers in 2018-2019. Additional savings are expected in interest payments, most notably in 2020, as a sizable portion of maturing debt is refinanced at lower rates."

The Commission expects Croatia's budget to remain balanced. "In structural terms, the general government deficit is expected to increase from 0.3% of GDP in 2018 to 1% of GDP in 2020 and decrease slightly in 2021. The debt ratio is set to continue declining strongly on the back of surpluses and nominal GDP growth, dipping below 65% of GDP in 2021."

More economic news can be found in the Business section.

ZAGREB, November 7, 2019 - Anka Mrak Taritaš (GLAS) said in parliament on Wednesday that the 2019 budget revision was a real picture of the government - it looked nice from the outside but lacked any serious reform, with citizens not feeling any progress despite good economic indicators.

Tax revenues have increased but only owing to an increase in consumption and imports and not owing to an increase in production. The growth of exports has been slowing down for the second year in a row while EU funds are not being sufficiently used, Mrak Taritaš warned in a parliamentary debate on the budget revision.

She also warned about growing imports of labour.

All kinds of pensions fall under the pension system, both privileged and unearned, while people who have really earned their pensions through work barely make ends meet, she said.

Social Democrat Branko Grčić said that tax revenues exceeded the government's projections by 3.1 billion kuna but that the question was how that money had been spent.

Tax revenues have increased but owing to a growth in consumption. That shows that tax reliefs are just a cosmetic measure because the share of tax revenues in GDP in 2019 has not changed significantly compared to the term of the SDP-led government, standing at 20.4%, Grčić said.

As for budget expenditure, the item of EU funds has been corrected because plans are not being realised - the item has been reduced from 10.8 to 8.1 and then to 7.5 billion kuna, said Grčić, adding that when Croatia's payment into the EU budget of 3.5 billion kuna was deducted from that amount, the effect of EU funds was 4 billion kuna or only 1% of GDP.

He also noted that the announced increase of non-taxable income from 3,800 to 4,kuna 000 would mean a wage increase of 52 kuna at the most, which he said was negligible.

Božo Petrov of the MOST party warned that the state was consuming two-thirds of economic growth, which he described as politically and socially irresponsible, recalling that in the period from 2016 to 2019 additional revenues of 3 billion kuna had been earned but that more than that had been spent.

"Where has that money gone? Because citizens' living standards are still poor," he wondered.

Petrov said that the amount of money absorbed from EU funds was 2.2 billion kuna less than planned and that emigrants' remittances amounted to 18 billion kuna annually, which, he said, meant that without that money, Croatia would be in the red and in a deep recession.

The state's spending has been inflated by 30 billion kuna and an additional 3 billion kuna has been taken from citizens' income, Petrov said, wondering what message this was sending to citizens and adding that there could be no reduction of the tax burden without cutting the state's spending .

Independent MP Hrvoje Zekanović asked why Croatia was borrowing money if it had a budget surplus.

The report on the budget revision makes no mention of demography and the government has not managed to find an economic model to keep young people in the country, Zekanović said, describing PM Andrej Plenković's economic policy as a failure.

More budget news can be found in the Politics section.

ZAGREB, November 6, 2019 - Croatian National Bank governor Boris Vujčić said on Wednesday a recession was not expected in the next two years, only a relatively mild slowing of GDP growth, both in the euro area and Croatia.

He was responding to questions from the press in Opatija on the fringes of a conference on Croatia's 2020 economic policy.

Vujčić said that did not mean a recession was ruled out. As we know, economists are not very good in predicting recessions and so far, there has not been much success in forecasting when one would happen, he added.

The current projection is that the euro area will likely grow a little under 1% in 2020 and that Croatia's GDP could grow about 2.5%, Vujčić said.

The main current risks are the trade war, primarily the one between the U.S. and China, he said. Possible sanctions have been announced, tariffs which the U.S. could impose on Europe, primarily the auto industry.

If that happens and trade tensions become even more strained, it will have a bad effect on growth and some countries in Europe could fall into a recession, but even in that case we expect only GDP growth to slow down, not a recession, Vujčić said.

"One can never definitely say there will be no recession, but we can definitely say that it will occur one day. When? That's a different matter, but we don't expect it in the next two years."

More news about Croatian economy can be found in the Business section.

ZAGREB, November 6, 2019 - President Kolinda Grabar-Kitarović on Wednesday said that Croatia needs an economic growth of at least 5 percent so that citizens can feel an improvement in the standard of living.

During a conference on Croatia's economic policy in 2020, organised by the Croatian Association of Economists, at which she talked about key challenges and preconditions for economic development, President Grabar-Kitarović asserted that there are more and more positive elements because the economy is growing, as are wages and employment, and Croatia is climbing up the ladder of competitiveness, along with positive trends in public and foreign debt trends.

According to her estimate, Croatia needs a growth of five percent for citizens to be able to feel that in their living standards.

"We need an economic growth of at least five percent a year and only then will we feel any real improvement in standards. We are growing now but we continue to be oversensitive to external instabilities, and that growth will slow down to two percent as we still have not set the foundations for stronger growth. Some parts of the country still are lagging behind drastically and even though we are growing, comparable countries are growing faster," she said.

She said that all that negatively reflected on demographic changes and that it is necessary to establish conditions that will permanently improve living standards, rationalise and digitise state administration, and that public administration has to be a support and not a barrier to an innovative economy.

The conditions for an accelerated growth are zero tolerance of corruption, a comprehensive reform of state administration and the judiciary, and facilitating the implementation of innovations.

"We have to increase the level of employment, modernise working conditions, decrease emigration and the shortage of a qualified labour force," she added.

She believes that it is necessary to do away with the notions of a minimum wage and child allowances, and that it is necessary to reshape the economy so social welfare does not rule.

"Our people do not want welfare benefits but a well-paid and dignified job," she underlined.

Croatia needs to become a place for new investments and in that regard tax reliefs are welcome, she said. Investors need to be provided with legal security for their investment because the uncertainty of regulations and long-standing court procedures have become too heavy a burden on development, she added.

According to Grabar-Kitarović, it is necessary to strongly enhance the pension and healthcare systems and to advocate more strongly for citizens with below average earnings and for pensioners.

She underlined the importance of economic diplomacy to support exports and attract investments.

We are stagnating without any solutions for new jobs, says economic analyst

The president of the Croatian Association of Economists, Ljubo Jurčić said that Croatia was achieving political success in Europe, but that the final results are how people live in Croatia. Croatia is stagnating in Europe, he underscored, and we do not have a solution as to how to create jobs and find additional workers.

There is no industrial policy. There is no analysis of the exchange rate policy or of the second pension pillar and that is holding us back, Jurčić concluded.

Minister of Environment and Energy Tomislav Ćorić said that with regard to the reduced public debt to GDP ratio, Croatia is one of the most successful economies in Europe.

"Our credit rating has once again been raised to investment level, Croatia is in the company of the best, profit tax has been reduced, the non-taxable income has been increased, VAT has been reduced on products and services and so on," he said.

Ćorić claimed that there were 1.5 million employed in July, which was the most in the past 28 years, and that the average wage had increased by 5% over the past 3 years. The minimum wage too has increased, as has the wage base for public servants, and pension allowances also have gone up.

"Croatia today is miles ahead of the Croatia of 2015 and the figures can be checked," he said.

The numbers give us a basis for optimism and we need that in 2020, he said and added that he believes economic growth in 2020 will be better than this year.

More economic news can be found in the Business section.

ZAGREB, November 6, 2019 - During a debate in parliament on Wednesday about amendments to this year's budget, Finance Minister Zdravko Marić boasted about responsible management of state finances while the opposition had a different view.

"Croatia has a balanced budget. For four years in a row we have not crossed the originally defined limit. We are acting in line with our financial capacity," Marić said presenting the amendments to the most important financial document for the state.

The amendments foresee an increase in revenues of 1.6 billion kuna or 1.2% to 137.7 billion kuna while overall expenditure is being decreased by 1.3 billion kuna, from 140.3 billion kuna to 139 billion kuna.

Referring to macroeconomic indicators, Marić underscored that it was clearly visible that economic activity was growing, that positive trends had been identified in some economic sectors but that certain challenges were also visible.

In the first half of the year, economic growth was 3.1% with a strong contribution from personal consumption, the minister said, adding that the government was glad about increased investments and that the export of commodities and services had continued to grow, albeit not at the rates recorded in previous years.

Bridge MP Miro Bulj accused Minister Marić of boasting about the budget revision but that he did not present the "most important truth."

"The most educated Croats have emigrated and last year made remittances in the amount of 5% of GDP or 2.4 billion euro, that is a disastrous policy," Bulj said.

Emigration and demography are aspects that go beyond a one-year budget, Marić retorted.

"You were one of those who raised their hand to reduce teachers' salaries," Marić responded to MP Gordan Maras (SDP) who asked where (Marić) had managed to find 120 million kuna he was now offering education-sector workers and why there was no money to meet their demands worth 400 million kuna yet there was 280 million kuna to buy out the APIS IT - Information System and Information Technologies Support Agency, which is owned by the City of Zagreb.

"Are you buying (Zagreb) Mayor (Milan) Bandić's support?" Maras asked.

"Your government reduced job complexity indices and wages, while this government has raised wages by 18.3% without any tax changes," Minister Marić responded.

"Next year's budget foresees a 2+2+2% (wage increase), but the additional 120 million kuna, to be secured if the regulation on job complexity indices is not defined, is not foreseen by the 2020 budget. Neither was an additional 2 percent foreseen for this year, yet we managed to come up with those funds through redistribution," Marić said.

More budget news can be found in the Business section.

ZAGREB, November 5, 2019 - Croatia's public debt reached HRK 297.1 billion at the end of July 2019, up by 11 billion kuna or 3.8% from the end of 2018, and the increase was due to the issue of a €1.5 billion euro bond in June to secure funds for the repayment of a bond maturing in November, data from the Croatian National Bank shows.

In addition, the slight strengthening of the domestic currency, the kuna, against the euro affected the nominal expression of the debt in the kuna given that about 65% of general government obligations are in the euro or are tied to the euro, Raiffeisenbank Austria (RBA) said on Tuesday in a comment on the latest data from the Croatian central bank.

The level of public debt was also affected by a data review following the resectorisation of several statistical units into the general government sector.

General government internal debt was 186.7 billion kuna, an increase of 3.5% from the end of 2018, while external debt rose by 4.4% to 110.4 billion kuna.

RBA analysts recalled that $1.5 billion debt arising from a euro bond issued in 2009 would fall due in November and that it would be covered with funds from the euro bond issued this June. In addition, a €1 billion bond issued on the domestic market with a foreign currency clause also matures in November and the government is expected to issue another bond on the domestic market this month, which would conclude (re)financing for this year.

Considering the economic environment, solid fiscal improvements and the investment rating, a further slight narrowing of spread, especially at the longer end of the curve, is not ruled out.

For the government, borrowing under such terms means considerable savings on interest costs, which had been reduced in the last three years by nearly 3 billion kuna or 25% and reached 2.3% in 2018.

"Considering the fundamental indicators and the market environment, we believe that yields (and coupon interest rates) will reach new all-time lows," RBA said.

As for refinancing needs, RBA analysts believe that 2020 will be somewhat less demanding and the needs easily met, estimating them at 14% of GDP or 57.5 billion kuna.

More economic news can be found in the Business section.

ZAGREB, November 1, 2019 - Economy Minister Darko Horvat said on Friday that the necessary funding for overdue monthly wages of workers of Đuro Đaković metal and mechanical engineering group would be found and that after that, decisions should be made on the future of that Slavonski-Brod based group.

Asked by the press in Veliko Trgovišće on Friday whether it was the Croatian Postal Bank (HPB) that should provide financial means for that purpose, Horvat answered in the affirmative.

Some 70 million kuna should be used for the overhaul of the group.

"We are together with the HPB seeking a model that should help restructure Đuro Đaković. Those 70 million kuna should provide a tailwind for the company in the next six months until the completion of the restructuring and until we find a new, true and good strategic partner," Horvat said.

The accounts of the Đuro Đaković were blocked on Wednesday and the management started negotiations with creditors on the removal of the blockade. The company's workers have been on strike since 24 October because they have not received wages for September.

On Wednesday afternoon, the group said that management board chairman Marko Bogdanović tendered his resignation. Bogdanović says in an explanation of his resignation that the group is currently in an unenviable situation due to two crucial issues: inability to financially follow the production of wagons for export and inadequacy of the group's own capital.

Also on Wednesday, the group issued a financial report about its loss of 38.7 million kuna in first nine months of 2019.

Total consolidated revenue in the first nine months of 2019 was 235.5 million kuna, down 35.4% or 129 million from the first nine months of 2018, while consolidated expenditure fell by 16.9% to 116.2 million kuna.

At the end of March 2019, the Đuro Đaković Group had 544.1 million kuna in business deals signed.

On Wednesday morning Minister Horvat said that the Đuro Đaković company needed restructuring and a strategic partner.

"We realise that, as in other ailing companies, the old philosophy of doing business is simply not possible. We helped Đuro Đaković a year ago by giving a loan which is slowly coming due for repayment. We are looking for a model to pay the one late salary, but without serious restructuring and a serious strategic partner, Đuro Đaković won't be able to continue at the pace it did when it was created and when it was a recognisable brand, not just in Europe but worldwide," Horvat told reporters.

Asked about the possibility of US company BAE Systems entering the group, he said he did not have such information. Jutarnji List daily said today BAE was considering opening a maintenance centre for Bradely armoured vehicles in Slavonski Brod.

Horvat said he asked management to submit an analysis of the situation in Đuro Đaković in the next ten days, after which the company's receivables and liabilities would be known.

More economic news can be found in the Business section.