ZAGREB, February 1, 2019 - The EU28 unemployment rate in December 2018 remained the lowest rate recorded since the start of the European Union monthly unemployment series in January 2000, while unemployment in Croatia it mildly decreased and was again lower than the euro area average, according to Eurostat.

The EU28 unemployment rate was 6.6% in December 2018, stable compared with November 2018 and down from 7.2% in December 2017.

The euro area seasonally-adjusted unemployment rate was 7.9% in December 2018, stable compared with November 2018 and down from 8.6% in December 2017. This remains the lowest rate recorded in the euro area since October 2008.

Eurostat estimates that 16.306 million men and women in the EU28, of whom 12.919 million in the euro area, were unemployed in December 2018. Compared with November 2018, the number of persons unemployed decreased by 75,000 in both the EU28 and the euro area. Compared with December 2017, unemployment fell by 1.533 million in the EU28 and by 1.174 million in the euro area.

Among the member states, the lowest unemployment rates in December 2018 were recorded in Czechia (2.1%), Germany (3.3%), Poland (3.5%) and the Netherlands (3.6%). The highest unemployment rates were observed in Greece (18.6% in October 2018), Spain (14.3%) and Italy (10.3%).

In Croatia, the unemployment rate in December 2018 was 7.7%, down 0.1 percentage points on the month. It was lower than the euro area average for the second month running. Eurostat estimates that 137,000 Croatians were unemployed, 3,000 fewer than in November 2018 and 39,000 fewer than in December 2017.

Croatia was again among the member states with the largest unemployment decreases year on year, by 2 pp. The largest decrease was recorded in Greece, by 2.4 pp.

In December 2018, 3.365 million young persons (under 25) were unemployed in the EU28, of whom 2.391 million were in the euro area. Compared with December 2017, youth unemployment decreased by 249,000 in the EU28 and by 141,000 in the euro area. In December 2018, the youth unemployment rate was 14.9% in the EU28 and 16.6% in the euro area, compared with 16.1% and 17.8% respectively in December 2017.

In December 2018, the lowest rates were observed in Czechia (5.8%), Germany (6.0%) and the Netherlands (6.6%), while the highest were recorded in Greece (38.5% in October 2018), Spain (32.7%) and Italy (31.9%).

In Croatia, youth unemployment in the last quarter of 2018 was 22.7%, down 1.2 pp on Q3, with 33,000 young Croats out of work, 3,000 fewer than in Q3.

More news on unemployment in Croatia can be found in the Business section.

ZAGREB, January 29, 2019 - Industrial production in Croatia in December plummeted by 6.6% compared to December 2017, and this has been sharpest decline in the last two years, whereas industrial production shrank for the whole of 2018, for the first time in four years, according to data provided by the national statistical office (DZS) on Tuesday.

The seasonal adjusted data show that the December industrial output dropped by 2.9% compared to November 2018, whereas it plunged by 6.6% on the year, thus falling for six months in a row year-on-year.

The 6.6% reduction is the highest since a 14% decline in December 2016.

Trends in Croatia's industrial production have been unstable in the recent period, and out of the last 14 months, 12 of them saw a decline.

Thus, the industrial production in the whole of 2018 was down by 1% compared to 2017 when it increased by 1.9%

Throughout 2018, only February and June saw a rise in industrial production, while it declined in the other 10 months, RBA analysts say in their comment on the DZS data.

Broken down by types of goods, in December capital goods' production plunged by 17.6% on the year and the production of energy fell by 8.6% , while the production of durable consumer goods decreased by 7.7% and intermediate goods by 6.5%. Only the production of non-durable consumer goods went up by 1.9% in the last month of 2018.

The RBA analysts expect a moderate recovery rate of industrial production in 2019. They assess that from the point of view of demand, growth will be further generated by branches in connection with wholesale and retail trade, transport and storage, accommodation, hospitality industry, ICT and construction sectors.

More news on the Croatian industry, as well as its economy, can be found in the Business section.

ZAGREB, January 21, 2019 - The government debt to GDP ratio fell in the European Union in the third quarter of 2018, and Croatia was among the countries with the largest decreases both month on month and year on year, according to data from the EU statistical office Eurostat released on Monday.

"At the end of the third quarter of 2018, the government debt to GDP ratio in the euro area (EA19) stood at 86.1%, compared with 86.3% at the end of the second quarter of 2018. In the EU28, the ratio decreased from 81.0% to 80.8%. Compared with the third quarter of 2017, the government debt to GDP ratio fell in both the euro area (from 88.2% to 86.1%) and the EU28 (from 82.5% to 80.8%)," Eurostat said.

In Croatia, government debt at the end of the third quarter of 2018 stood at 281.8 billion kuna, or 74.5% of GDP, down by 1.6 percentage points from the previous quarter and 4 percentage points lower than at the same time in 2017.

The highest government debt to GDP ratios at the end of the third quarter of 2018 were recorded in Greece (182.2 %), Italy (133.0%), Portugal (125.0%), Cyprus (110.9%) and Belgium (105.4%), and the lowest in Estonia (8.0%), Luxembourg (21.7%) and Bulgaria (23.1%).

Compared with the second quarter of 2018, six member states registered an increase in their debt to GDP ratio at the end of the third quarter of 2018, nineteen a decrease and the ratio remained stable in three member states.

The highest increases in the ratio were recorded in Cyprus (+6.9 percentage points – pp) and Greece (+4.8 pp). The largest decreases were recorded in Malta (-3.1 pp), Slovenia and Croatia (both -1.6 pp), Hungary and Czechia (both -1.4 pp), the Netherlands (-1.1 pp) and Poland (-1.0 pp).

Compared with the third quarter of 2017, four member states registered an increase in their debt to GDP ratio at the end of the third quarter of 2018, and twenty-four a decrease.

An increase in the ratio was recorded in Cyprus (+9.7 pp), Greece (+7.4 pp), the United Kingdom (+0.4 pp) and Slovakia (+0.1 pp), while the largest decreases were recorded in Slovenia (-8.0 pp), Malta (-6.8 pp), Portugal (-4.6 pp), Austria (-4.3 pp), Lithuania (-4.2 pp), the Netherlands (-4.1 pp), Ireland and Croatia (both -4.0 pp), Eurostat said.

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

In recent days, many users of Facebook and other social networks have been sharing their photos from 10 years ago and nowadays, comparing what has changed in the meantime. Journalists have decided to do the 10 Year Challenge for Croatia as well and see what has happened in and with Croatia in the meantime, reports Index.hr on January 19, 2019.

Ten years ago, in 2009, Croatian Prime Minister was Ivo Sanader (tried for several cases of corruption; spent time in prison), while President was Stjepan Mesić (still alive and well; in political retirement). That was a turbulent political year, in which Sanader suddenly resigned, without giving a convincing explanation, with his deputy Jadranka Kosor (lost elections in 2011; removed as HDZ president soon after that; now a retiree and prolific Tweeter user) taking over the government on 1 July 2009.

It is nice to remember some of the better-known politicians who were ministers at the time. Some have since disappeared from politics, some have been convicted of various corruption crimes, and some are still active today. For example, in the Sanader government, the regional development minister was Petar Čobanković (convicted of corruption, instead of going to prison he spent some time peeling potatoes as community service). Interior Minister was Tomislav Karamarko (elected as HDZ president; became deputy prime minister; resigned due to a scandal; thinking about returning to politics), transportation minister was Božidar Kalmeta (tried for corruption), while today's Speaker of Parliament Gordan Jandroković was foreign minister. Darko Milinović, recently thrown out of HDZ, was health minister. Croatia was not yet a member of the European Union but was admitted to NATO that year.

In the last ten years, Croatia has lost many of its inhabitants. The six-year recession has left a profound mark on the economy, and it has also created a sense of doom, prompting a wave of emigration. The scale of the population decline is best seen by the fact that in the 2018/2019 school year there are six schools which have been closed because they were left with no students, while 117 schools saw not a single new student being enrolled.

The estimates of the State Bureau for Statistics for 2017 give a figure of 4.1 million inhabitants, which is about 200,000 less than in 2007 when 4.3 million people lived in Croatia. Given that there is no data for the current year, and the latest official data is for 2017, for comparison purposes the journalists have analysed the decade from 2007 to 2017.

In addition to the number of inhabitants, the number of employed fell from 1.517 million in 2007 to 1.407 million in 2017. It was even less at various points in the last ten years. As the number of employees fell, the number of pensioners rose, which jeopardises the retirement system because salary contributions of current workers fund the pensions of existing retirees. Thus, in 2007, the number of retirees was 1.11 million, while in 2017 the number rose to 1.23 million.

As for the public debt, in 2007 it amounted to 120 billion kuna, while by the end of 2017 it had exploded to 283.3 billion kuna.

There was also a rise in public spending. If we add to the state budget the expenditures of the Croatian Health Insurance Institute, public spending amounted to 111.1 billion kuna in 2007 and reached 146.1 billion kuna billion in 2017.

Basically, in ten years almost everything that was supposed to grow fell, and all that was supposed to drop increased instead.

More news on Croatian politics can be found in our special section.

Translated from Index.hr.

ZAGREB, January 10, 2019 - Croatia's government on Thursday sent to parliament a draft act on the ratification of the treaty on the establishment of Inter-American Investment Corporation.

Based on the 1993 regulations on the succession to the former Socialist Federal Republic of Yugoslavia (SFRY), Croatia's adoption of the relevant legislation on the membership of IDB (Inter-American Development Bank) implies that Croatia embraces that membership and thus possesses 6,895 shares worth 83.8 million dollars in the IDB bank's equity, Finance Minister State Secretary Zdravko Zrinušić said at the government's meeting today.

In 2015, the annual general assembly of the IDB and the Inter-American Investment Corporation adopted a resolution on the consolidation of the private sector of the IDB Group into the Inter-American Investment Corporation.

Considering that resolution, the Croatian government on 22 March 2018 adopted a decision on launching the procedure for the establishment of Inter-American Investment Corporation.

The purpose of the proposed legislation is to ratify the contract on the foundation of Inter-American Investment Corporation.

"The Inter-American Investment Corporation (IIC), a member of the Inter-American Development Bank (IDB) Group, is a multilateral organization based in Washington, D.C., that is committed to the development of Latin America and the Caribbean through the private sector," the IIC says on its website.

"As part of its mission, the IIC supports the private sector and state-owned enterprises through financing in the form of loans, equity investments, and guarantees. The IIC also partners with clients to provide advisory and training services.

"In January 2016, the IDB Group consolidated its private sector operations in the IIC to better serve the region, clients and partners, and to maximize its development impact. The consolidated IIC offers the full array of private sector products and services previously offered across the IDB Group," according to the information on the IIC website.

The decisions made by the Croatian government will facilitate the access of Croatian companies to the tenders advertised by the IDB Group.

More news on Croatia’s economic policies can be found in our Business section.

ZAGREB, January 9, 2019 - The World Bank has mildly increased the outlook on Croatia's economic growth this year, warning that activities in Croatia, Bulgaria and Romania are held back by softening exports and labour shortages. Croatia's economy is projected to grow 2.8% this year, the World Bank said on Tuesday. In last June's outlook, the growth was projected at 2.7%.

The World Bank projects that Croatia's economic growth in 2018 was 2.7%, revising upwards the projection from last June by 0.1 percentage points, while upholding the growth projection for 2020 at 2.8%. In 2021, growth is projected to slow down to 2.6%.

"Softening exports and labour shortages held back growth in Bulgaria, Croatia and Romania, while fiscal support and strong consumption enabled Poland to grow a faster 5 percent," the World Bank said.

As for the global economy outlook, the World Bank points to a softening of international trade and manufacturing activity around the world as well as elevated trade tensions. Therefore, it reduced global growth projections for this year and 2020 by 0.1 percentage points. The growth projection is 2.9% for 2019 and 2.8% for 2020 and 2021.

"At the beginning of 2018, the global economy was firing on all cylinders, but it lost speed during the year and the ride could get even bumpier in the year ahead," said World Bank Chief Executive Officer Kristalina Georgieva.

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

ZAGREB, January 8, 2019 - In December 2018, the Economic Sentiment Indicator (ESI) increased markedly in Croatia, reflecting the optimism wave in both the services and retail sectors, according to European Commission's monthly survey, released on Tuesday.

The ESI for Croatia in December 2018 was up two points from November, reaching 117.4 points, which is its highest level since May 2018.

The biggest increase in December was recorded in services confidence (+5.6 points, reaching 21.9 points), followed by retail trade confidence (+5.2 points, increasing to 7.8 points).

A marked decrease was recorded in construction confidence which was up 1.7 points, reaching 14.9 points. Also up was consumer confidence (+1.1 points, closing at -8.6 points).

A decrease was marked only in industry confidence, which was down 0.4 points, closing at 1.6 points.

In December 2018, the ESI decreased markedly in both the euro area (by 2.2 points to 107.3) and the EU (by 2.0 points to 107.6).

The marginally smaller decline of the headline indicator for the EU (−2.0) can be attributed to virtually unchanged sentiment in the largest non-euro area EU economy, the UK (+0.1), while the ESI decreased markedly in Poland (−1.2).

EU confidence deteriorated markedly in line with the euro area in industry, services, construction and among consumers, and also weakened in retail trade.

The deterioration of euro area sentiment resulted from lower confidence in industry, services, construction and among consumers, while confidence improved slightly in retail trade.

The ESI weakened in all the five largest euro area economies; significantly so in Spain (−3.0), France (−2.0), Germany (−1.9) and Italy (−1.4) and, marginally so, in the Netherlands (−0.3).

More news on Croatia’s economy can be found in our Business section.

ZAGREB, January 4, 2019 - Data from the fiscalisation system show that consumption in 2018 increased on the year, with the total amount of receipts issued exceeding 184 billion kuna, up 7.98%, while the number of receipts issued went up 0.76%, the Tax Administration said on Thursday.

Over 2.363 billion receipts were issued in 2018, as against 2.345 billion in 2017. Their total amount was 184.08 billion kuna, as against 179.48 billion kuna in 2017.

The average receipt amount was 77.89 kuna, up 7.16% on the year (72.69 kuna in 2017).

In December 2018, consumption went up more than 7% on the year. The number of receipts issued totalled more than 179.9 million, up 0.36%. Their amount totalled 14.858 billion kuna, as against 13.795 billion kuna in December 2017.

The average receipt amount went up 7.32%, from 76.96 to 82.59 kuna. The highest number of receipts was issued on December 21, about 7.7 million. In December 2017, the highest number of receipts was issued on the 22nd, about 7.9 million.

In the weekend before Christmas 2018, December 14-16, nearly 16.5 million receipts were issued, while in the Christmas weekend, December 21-23, their number jumped 19.27% to 19.63 million.

Consumption in Croatia in the weekend before Christmas totalled 1.42 billion kuna, jumping 28.63% in the Christmas weekend to 1.83 billion kuna. The average receipt amount in the Christmas weekend was 93.10 kuna, as against 86.33 kuna the weekend before.

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

ZAGREB, December 18, 2018 - The Croatian National Bank (HNB) forecasts Croatia's economic growth in 2018 and in 2019 at the rate of 2.7%, the central bank's governor, Boris Vujčić, said at a news briefing in Zagreb on Tuesday.

We expect the growth to be at the same rate as this year, 2.7%, however, downward risks are prevailing, the governor warned.

The main contribution to the growth will come from personal consumption, which is likely to rise from the expected rate of 3.2% this year to 3.5% in 2019.

Vujčić went on to say that gross fixed capital formation could be markedly intensified from this year's projection of 3.7% to 6% in 2019, provided that state investments rise on the back of a stronger absorption of EU funds. Investments are vital, as they lay the ground for sound and sustainable growth, he added.

Considering the labour market, the HNB expects employment to grow and, in parallel, unemployment to fall to a record low 7.2%. This year, employment is set to rise at the rate of 2.4% and a further 1.8% in 2019.

The HNB expects the inflation rate to slow down from 1.5% in 2018 to 0.9% in 2019.

Commenting on the conditions for borrowing, Vujčić said that favourable trends continued to be present. Interest rates on loans are falling and interest rates on state borrowing are around zero thanks to high liquidity on the financial market, Vujčić said.

The HNB continues conducting its expansionary monetary policy in order to sustain high liquidity of the system in parallel to a stable kuna-euro exchange rate. For this purpose, the HNB will continue implementing interventions on the foreign currency market, according to Vujčić.

The latest foreign exchange intervention by the central bank was conducted on Monday, when it purchased 457.7 million euro at the average exchange rate of 7.397965 kuna per euro, thus injecting some 3.39 billion kuna in the system, Vujčić told reporters. This was the second fine-tuning operation of this kind in December and the fourth so far in 2018.

The average excess liquidity in the domestic currency in the first eleven months of 2018 totalled 24.6 billion kuna, or 9.4% of GDP.

Gross foreign reserves stood at 17 billion euro at the end of September, 1.3 billion more than at the end of 2017.

More info on Croatia’s economic growth can be found in our Business section.

ZAGREB, December 11, 2018 - The Croatian authorities have skilfully utilised the economic upturn to reduce indebtedness and further build external buffers but important challenges remain for the Croatian economic policies such as the need to restructure public administration and make the pension and healthcare systems sustainable, a delegation of the International Monetary Fund (IMF) said on Monday, noting that the current economic situation provided a good basis for the necessary structural reforms.

The IMF staff were recently on a visit to Croatia as part of regular consultations under Article IV of the IMF's Articles of Agreement. Their closing statement was published on the IMF and Croatian National Bank's (CNB) websites on Monday.

"Macroeconomic developments have been positive. Growth continues to be strong, inflation benign, and unemployment has steadily declined. However, the labour participation rate remains low. The Croatian authorities have skilfully utilized the economic upturn to reduce indebtedness and further build external buffers. Yet, important challenges remain," IMF delegation says.

It notes that relatively low levels of public and private investments and the emigration of young people hamper medium-term growth prospects. "Emigration and population aging are generating labour shortages. They also challenge the long-term sustainability of the pension and the healthcare systems. This calls for a smartly focused transformation to a more dynamic economy, and a more efficient state," the IMF officials say, underlining as the most important "a sizable restructuring of public administration".

Durable fixing of the healthcare and pension systems are two of the other important issues to tackle, the IMF delegation says, noting that some welcome progress is being made on those fronts, but the momentum needs to be sustained. “Acting decisively now—under favourable conditions—would ensure higher living standards in the future," the IMF delegation says.

The IMF expects Croatia's economic growth to moderate gradually over the next few years, as the economy moves closer to its potential. However, there are negative risks to this outlook, mainly due to possible changes in regional and global economic and financial conditions. "Sustained strong growth is needed to catch up to the income levels of wealthier EU countries. Achieving this requires an infusion of greater dynamism and resilience to the economy."

Further integration into Europe via the entry into ERM II and the banking union will set the stage for the envisaged adoption of the euro. Yet, to enjoy the full benefits of the currency union, deeper structural changes are essential, as is continued careful management of the country's public finances, the IMF says.

"Today's economic conditions provide fertile ground for the needed structural changes. Such changes require up-front compromises from all stakeholders and the rewards are harvested with time, once the efforts bear fruit. Therefore, they have greater chances of success if initiated when economic conditions are improving, as they are currently. The authorities have made some progress with respect to the National Reform Programme, which covers a wide area of structural reforms. While welcoming this progress, we encourage the authorities to push forward a focused structural agenda with stronger impetus."

A more dynamic state can facilitate durable growth, the IMF officials say.

Compared with regional peers, Croatia currently has one of the largest expenditures on total public employment proportional to the size of its economy. Furthermore, many municipalities do not have sizable populations, making the scope significant to merge services thereby generating greater efficiencies. "Decisive progress with reforms in this area will free up funds for investment in infrastructure and workers. It will also lead to better services for households and businesses."

The new draft law on merit-based civil service employee compensation is a first step towards a more efficient public service. "If complemented with an appropriate reduction in total public employment expenditure, it could open the space for high performing public employees to enjoy higher wages."

New public employees can be hired where they are needed, for example to enhance administrative capacity to absorb EU funds.

The further easing of administrative, tax, and parafiscal fees, will also produce collateral benefits by improving the business climate, enabling higher private investment and more job creation, the IMF officials say, noting that reforms to judicial and legal processes are important to keep on the agenda.

The recently passed pension reform is an important step in putting the system more in tune with the reality of increasing life-spans, and to make it more sustainable and equitable across generations, says the IMF delegation.

"Reinforcing measures that discourage early retirement, increasing the statutory retirement age, and eliminating group-specific pension provisions sets the stage for further measures to improve the system's viability. Examining the underlying weaknesses of the second pillar of the pension system is rightly on the authorities' agenda. Without such measures, pensions are likely to decrease, directly affecting the standard of living of the elderly," the delegation says in its statement.

Employment has picked up notably over the last two years and the challenge is to sustain this expansion, says the delegation. Yet, the labour market participation rate remains one of the lowest in the EU. "Structural unemployment, especially among youth and women, is high. This calls for steps to improve education and training."

Labour market flexibility needs to be enhanced, but this needs to be done carefully. "It should not lead to a two-tiered system, wherein employers invest significantly less in workers on temporary contracts and offer them less security relative to those on open-ended contracts. Such a situation could encourage further emigration of the young, to the detriment of medium-term growth prospects. This situation would benefit neither employees nor employers."

Solutions that better balance the considerations of both employers and employees are needed. This requires innovative thinking and compromises from all stakeholders.

A solution could take the form of a "hybrid" between the current fixed and open-ended contracts for an initial probationary period, to be followed by mandatory conversion to the full open-ended contract, upon completion of the probation.

It could also take the form of encouraging qualified public-sector workers who are interested in private sector employment, but fear losing the relative safety of their jobs to try their hand in the private sector with suitable but temporary safeguards to induce some risk-taking, the IMF officials say.

"To be clear, any solution needs to be thought through in detail, but the scope for innovation exists. Given that currently there are labour shortages, this would be a good time to work on suitable solutions."

Measures to increase child care access would incentivize greater participation from women. Improved targeting of all social benefits to those who are most in need is also likely to induce greater labour force participation, reads the statement.

In a comment on Croatia's fiscal policy, the IMF delegation says that recent budget performance has been commendable. The first surplus since independence was achieved in 2017. A small surplus might also materialize in 2018, depending on the size of one-off expenditures related to shipyard guarantees, says the delegation.

It notes that its fiscal recommendations are motivated by two equally important medium-term goals—to rebuild room for fiscal policy manoeuvre that can be used in the event another recession hits the economy and to improve medium-term growth prospects.

"To achieve these results, we recommend steadily increasing the fiscal surplus towards 1 percent of GDP over the next five years, and thereby accelerating the reduction of public debt to below the Stability and Growth Pact (SGP) threshold of 60 percent of GDP by 2023. This would help to reduce the vulnerability to potentially negative changes in regional and global conditions. Our recommendations to strengthen the budget include a more growth-friendly composition of public expenditures, and a gradual shift to more stable revenue collection from a broader set of sources."

On expenditures, increasing public investment, reducing the total expenditure on public employment, and reforming social benefits to better target the most vulnerable in society, are the top priorities.

On the revenue side, recent gains need to be preserved, the IMF says.

"At the appropriately receptive time and with careful design and communication, the introduction of a modern property tax merits reconsideration. It can provide a more stable revenue base, make the system more progressive and fairer, and create room to reduce higher and distortionary taxes elsewhere. Yet, it needs to ensure that it does not place an undue burden on individuals who are cashflow constrained, such as those on a limited pension. Preparatory steps for possible future reconsideration dovetail with other reforms such as the ongoing modernization of the land registry and the cadastre."

As regards the health sector, the IMF delegation believes that health spending needs to be made more efficient, that administrative costs should be reduced and the quality of health services provided to citizens improved.

There is also a need to reduce the drain on the budget caused by health sector arrears, which the authorities are working towards.

It is encouraging to note the number of new entrants contributing to the healthcare system, and the reduction in the numbers of non-paying participants for supplementary benefits, although some of this is also due to emigration.

"Still, a more comprehensive transformation requires a more rational premium and co-payment structure, ensuring that exceptions are minimized to protect only the most vulnerable. As IT system improvements and more rigorous income-testing come onstream, more improvements should be possible."

The IMF also calls for enhancing governance and performance of state-owned enterprises (SOE).

"Persistent loss-making SOEs are a drain on the budget, taking up more in subsidies than they pay back to the state... Strengthening SOE governance and increasing accountability to their budgets would help improve their efficiency and discipline."

The IMF delegation concludes its statement by noting that the Croatian National Bank (CNB) continued to deftly navigate the environment of low interest rates and ample liquidity. "Going forward, the CNB will need to pursue policies, which will allow the economy to accommodate potentially tighter external conditions and harness inflation expectations."

The banking system is, on average, very liquid, well capitalized and profitable, the delegation says.

The non-performing loan ratio is declining, in part due to their sales to third parties. "Additional measures to prevent excessive household borrowing, e.g., more comprehensive debt service-to-income based measures, could be considered for introduction at the appropriate time, if real estate prices accelerate or high growth of cash loans persists."

Further corporate sector deleveraging would be welcome, including through making the bankruptcy procedures even more efficient, e.g., by facilitating out-of-court settlements.

"Despite recent changes in the bankruptcy legislation, consideration could be given to conducting a comprehensive review to ensure that the insolvency framework aligns with best practices," the IMF says.

More news on Croatian economy can be found in our dedicated section.