ZAGREB, November 10, 2018 - The MOST opposition party accused the Andrej Plenković cabinet on Saturday of squandering taxpayers' money as budget expenditures grew faster than the economy.

Nearly all macroeconomists say that, due to the high public debt, the budget's expenditures side must be put under control, the party said in a press release, adding that it was unacceptable that expenditures were rising 5.2% without any strategy and that GDP growth was projected at only 2.8%.

It is absurd that the population is drastically decreasing yet the budget is increasing uncontrollably, MOST said, adding that when it had been part of government, it started a trend of rational budget management, yet now the ruling HDZ and its new coalition partners were squandering money again. "Mr Plenković, you are pumping the budget without any strategic goal, which will hit us in the head like a boomerang."

MOST said Croatia's GDP growth lagged behind comparable countries, pushing it to the very bottom of the European Union. In September, industrial production fell 1.5% on the month and decreased over nine months this year, it added.

Salary growth in 2019 will total only 1.1 billion kuna at a time when 180 people are leaving Croatia on a daily basis, which is a glaring example of irresponsibility towards taxpayers' money, said MOST, wondering who would generate that amount and make up for the huge difference between revenues and expenditures.

In the best case scenario, tourism results for this year will be stable and nights in the peak seasons will drop 3% on the year, MOST said.

Enterprise will hardly pull us through with the structural workforce deficit, to which the government is not offering any solutions, and a new entrepreneur must pay 22,824 kuna in annual contributions even before opening a business, the party said.

For more on the activities of MOST, click here.

ZAGREB, November 9, 2018 - According to working-day adjusted data, household consumption in September 2018 rose 0.4% from the previous month and by 3.9% from September 2017, the national statistical office (DZS) said in a report on retail sales on Thursday.

The consumption growth rate in September was higher than in August, when consumption grew 3.1% year on year.

The September increase in consumption is a continuation of a record positive trend, considering that an annual drop in consumption was last registered in August 2014. This is the first time since the DZS started keeping record of household consumption statistics that consumption has grown for the 49th consecutive month.

In the first nine months of this year retail sales grew 3.6% in real terms from the same period of last year.

This shows that the national economy continues to be based predominantly on services related to commerce and tourism, Raiffeisenbank Austria (RBA) analysts said in a comment on the DZS statistics.

They expect retail sale growth to continue at solid rates in the coming months, owing to very good post-season tourism results, declining unemployment, a mild rise in employment and higher consumer confidence.

RBA analysts expect that, in the context of a still moderate inflation and low refinancing costs, disposable income will continue growing.

Croatia's exports amounted to 79 billion kuna in the first nine months of this year, rising by 4% compared to the corresponding period in 2017, whereas imports reached 130.3 billion kuna, up 6.1%, according to preliminary figures released by the State of Bureau of Statistics (DZS) on Thursday.

The foreign trade deficit came to 51.3 billion kuna, up 4.5 billion kuna year on year, and coverage of imports by exports fell from 61.9% to 60.6%.

Exports to EU countries totalled kuna 54.2 billion, climbing by 10.2% compared to the first nine months of 2017. Exports to non-EU countries dropped by 7.3% to 24.8 billion kuna.

Imports from EU countries increased by 6% to 101.5 billion kuna and those from non-EU countries rose by 6.8% to 28.9 billion kuna.

Expressed in euro, Croatia's exports came to 10.6 billion euro, up 4.3% over the January-September period of 2017, and imports went up by 6.4% to 17.6 billion euro. As a result, the foreign trade deficit totalled 6.3 billion euro.

Total deposits with Croatian commercial banks reached 288 billion kuna at the end of September 2018, increasing by 14 billion or 5.2 percent from September 2017, Raiffeisenbank Austria (RBA) said in an analysis of central bank (HNB) data on Thursday.

This marked a continuation of the growth trend which began in December 2011, mostly thanks to a strong increase in demand deposits.

Demand deposits, which include funds in current and giro accounts and banks' obligations arising from kuna payment instruments issued, exceeded 86 billion kuna in September, up 23.8 percent over the same month last year.

On the other hand, total savings and time deposits have been on the decline since October 2016. At the end of September 2018, they stood at 202 billion kuna, down 1.1 percent from September 2017.

The fall in savings and time deposits is the result of a fall in foreign currency deposits, as kuna-denominated savings and time deposits rose both on monthly and annual levels, exceeding 35 billion kuna, RBA said.

On the other hand, foreign currency savings and time deposits, which account for about 82 percent of all savings and time deposits, fell by 1.5 percent to kuna 166.5 billion year on year.

The structure of and trends in deposit amounts clearly show a greater inclination to holding liquid assets, which is certainly motivated by record-low interest rates on savings, RBA said, adding that this is the result of high liquidity in the financial system thanks in part to the central bank's expansionary monetary policy measures.

RBA said that the Croatian financial system would be marked by high liquidity throughout 2018, which along with modest lending growth rates implied a continuation of low passive interest rates. As a result, increased savings are likely to be directed more into demand deposits and less into savings and time deposits, it concluded.

For more on Croatia’s economy, click here.

ZAGREB, November 7, 2018 - Addressing a traditional conference of the Croatian Economic Association in Opatija on Wednesday, President Kolinda Grabar-Kitarović expressed satisfaction with positive economic trends and praised the government for the reform measures it is taking, but she also warned about crucial problems affecting the national economy.

In her address, titled "Key Challenges and Preconditions for the Economic Development of Croatia", the head of state underscored a GDP growth rate of 2.9%, continued economic growth, a 3.5% increase in retail sales in the first eight months of this year and positive employment trends, as the biggest achievements in the period since last year's meeting of the Croatian Economic Association.

In addition, a surplus in the general government budget of 2.8 billion kuna or 0.8% of last year's GDP, plus a surplus of 1.6 billion in the first half of this year, were also underlined as successes. In her speech, the president pointed to a fall in the public debt-to-GDP ratio to 80.2% at the end of 2017 and further to 74.3% at the end of the first half of this year.

"The above-mentioned facts clearly indicate that we have made some headway in the context of increasing economic growth, reducing unemployment and bringing order to public finances. These results can satisfy us to a certain extent, but we must not rest on our laurels. They are just the first step and a sign of encouragement for us to accomplish our real goal, and that is an annual growth rate of 5%," the president said.

She praised Finance Minister Zdravko Marić for implementing tax measures that make an additional 6.3 billion kuna disposable to the business sector, and described this as an impulse for a more robust growth. She said that unlike his predecessors, the current finance minister had done a good job by easing the tax burden.

Grabar-Kitarović, however, called for a fairer income taxation system and proposed the introduction of "a synthetic tax system whereby the aggregate income would be taxed equally, regardless of the source of income."

Currently, income from work is taxed progressively, while income from the property rent is taxed with a preferential rate of 12%, which applies to only 70% of the base. "That, together with some other taxes, has turned us into a society of rentiers," she said. "We can change that and the tax policy can be conducive to such efforts," the president said.

President recommends strengthening of second pension pillar

In connection with the reform of the pension schemes, Grabar-Kitarović warned that the pension system in the present-day circumstances "is unsustainable and poses the biggest financial risk for the state". Therefore, reinforcing the second pillar for pension contributions is the only right way to improve the system in parallel to cost cutting and certain changes in the structure of investments by pension funds, she said.

Concerning demographic trends, gradually raising the statutory retirement age and encouraging workers to retire later can help efforts to make the pension system viable, she added, praising the efforts which Labour and Pension System Minister Marko Pavić has been investing in that regard.

The president said that she attached great attention to decentralisation and regional development and in that context welcomed the government's tax measures resulting "in positive headway towards intensified fiscal decentralisation, more effective fiscal balancing and more even regional development."

She called for the strengthening of administrative and financial capacities of local authorities for the absorption of EU funds, noting that 32 out of 127 towns and municipalities had failed to withdraw any money from EU funds since Croatia's admission to the EU in mid-2013.

In her comment on the latest Doing Business report of the World Bank that criticises Croatia for a low level of productivity of the state administration and a slow judicial system as well as a poor business climate, the president called for a reform of the state administration and legal system so as to reduce red tape and lessen legal insecurity.

Lack of clear vision, development strategy biggest problem, says president

Grabar-Kitarović said that the biggest problem of the national economy "is the lack of a clear vision and a development strategy", adding that "we have to decide what we want to present and with what we want to position ourselves on the European and global markets in the long run."

She underlined tourism in that context and warned that it was both "impressive and discouraging" that through its direct and indirect effects, tourism accounted for close to 20% of GDP.

The question is how long the current concept of tourism, based on the country's geographical features, can be sustainable, while the existing transport and local infrastructure is becoming more and more vulnerable to a growing number of visitors, the president said.

She added that she saw Croatia's agricultural sector as its comparative advantage. "It is amazing that the Dutch make polders to meet their needs for agricultural production... while we have very good and fertile soil that is largely not cultivated," she said. "Maybe it is true that the national farm sector was destroyed by excessive imports, but that means that we joined the EU unprepared and did not have a pre-accession strategy, she said.

"I believe that these two examples - tourism and farming - are sufficient to illustrate how problematic it is not to have a strategy and how much the lack of a clear vision and economic development strategy can also affect the segments where we are very competitive," said Grabar-Kitarović.

Croatia must work to change the structure of its economy towards the production of technologically more complex products with added value as well as create conditions for greater productivity and development of the private sector, notably small and medium businesses, without neglecting public companies, she said. "This is important primarily for the sake of our people who are disappointed and are emigrating. If we want to stop or reverse that trend, we must primarily ensure job creation and higher salaries," she said.

She warned that a clear vision and an economic development strategy were especially important "in the context of geopolitical reshuffling, in which Croatia must capitalise on its position in terms of geo-transport and energy routes, as well as ongoing business and technological changes" so that it could become a strong European transport and energy hub.

"I am a big optimist and can say with certainty that we can succeed in all our efforts. We have enough wisdom and competence but we need a little more resolve, a proactive approach and optimism," Grabar-Kitarović said.

For more on Croatian economy, click here.

All well-developed countries know that without innovation there is no development of society and the economy. At the same time, it is known that Croatia is at the very bottom of Europe when it comes to investments in research and development. But it seems that Croatia has decided to catch up and prepare for the future, reports Večernji List on November 7, 2018.

The government plans to set up a new national council, this time for innovation, jointly led by the Ministry of Economy and the Ministry of Science, Education and Sports. It will also include other ministers, such as the Regional Development and European Funds Minister Gabrijela Žalac and Minister of Agriculture Tomislav Tolušić, as well as representatives of the Croatian Chamber of Commerce, the Croatian Chamber of Crafts and Trades, trade unions, the Croatian Employers' Association and others.

The body should ultimately change the picture when it comes to innovations in Croatia. According to the Ministry of Science, it will monitor the implementation of the Smart Specialization Strategy and suggest its modifications. The strategy was adopted by the government led by Prime Minister Tihomir Orešković, and it has defined the most promising future sectors that should revive the Croatian economy with the help of EU funds. The strategy is based on gathering the critical mass of researchers in scientific institutions and businesses that should work together on research and development to achieve excellence in research and its commercialization. The government has also defined five areas with the greatest potential, which are health and quality of life, energy and sustainable environment, transport and mobility, security, and food and bioeconomics.

At this point, Croatia is far from where it should be. According to the Bloomberg Innovation Index for 2018, Croatia is behind all European Union countries when it comes to innovation.

According to unofficial information, the council’s first meeting will be held this Friday, chaired by Economy Minister Darko Horvat. There were suggestions that the council should be led by the prime minister himself, but the proposal was rejected.

Bojan Jerbić, a professor at the Faculty of Mechanical Engineering and Naval Architecture, argues that Croatia has a chance for technological development in the future, but that it needs radical changes, a sort of scientific and technological "new deal". “We have fantastic research groups across Croatia, but many are not involved in the overall societal development and exist separately from the society. That is something which should jumpstart Croatia. We would have fantastic results in five to ten years. We would create a number of startups, new technology companies, create completely new jobs and new economic niches that would be internationally competitive,” said Jerbić.

To read more about Croatia’s technology sector, click here.

Translated from Večernji List (reported by Petra Maretić Žonja, Iva Boban Valečić).

ZAGREB, November 5, 2018 - Croatia's economic stagnation is a direct consequence of the fact that its ruling coalition is the result of political trade-offs, the opposition MOST party said on Monday, calling on the governing parties to accept its proposals if they wanted Croatia to join the top 30 countries in the Doing Business ranking.

"Since 2017, Croatia has fallen from 43rd to 58th place in the Doing Business ranking. Croatia is growing very slowly, while all countries in its neighbourhood are growing much faster. The problem of issuing building permits in Zagreb is one of the reasons for such a poor showing. There is also a problem with the public electricity utility HEP and its 50 percent higher costs of connection than in other transition countries," said Vedran Jerković, the head of the party's economic council, while discussing the issue of stagnation.

The party recalled that it had left a finalised action plan for public administration to the present government and 887 million kuna from EU funds. "Why aren't you implementing it? Why don't you tell the public how much money you have absorbed so far from the EU? The Doing Business ranking for 2019 will be even worse for Croatia. What does Mr Plenković say about that? What will be his excuse?" MOST leader Božo Petrov said.

"Plenković has said that the aim of his government is for Croatia to make it into the top 30 in the Doing Business ranking, and Croatia is backsliding. The government doesn't understand what the word 'reform' means. I call on the ruling parties to accept MOST's proposals if they really want Croatia to make it into the top 30," Petrov said.

Apart from the reform of public administration, MOST also proposes adopting a law on start-ups and reviewing profit tax as "a classic example of double taxation".

"The biggest problem for Croatia is a cumbersome public apparatus for which nearly 28 billion kuna is set aside annually. Another problem is a large number of procedures and steps in procedures, as well as messy public registers," MOST MP Sonja Čikotić said.

If you want to know more about MOST’s activities, click here.

ZAGREB, November 1, 2018 - The Croatian agency for small entrepreneurship, innovation and investment – HAMAG-BICRO – and seven financial institutions on Wednesday signed an agreement on cooperation in the implementation of the ESIF Capped Portfolio Guarantee financial instrument, intended for small business companies. The total amount of potential loans is 557 million euro.

By signing the agreement, the financial institutions have undertaken to create with their own funds a loan and leasing portfolio worth 557 million euro for small businesses, while HAMAG-BICRO will provide coverage for the institutions' losses of up to 25% of the loan portfolio, for which there is an allocation worth 58 million euro.

The European Structural and Investment Funds (ESIF) Capped Portfolio Guarantee is a financial instrument that is being introduced on the Croatian financial market for the first time and it is intended for micro, small and medium businesses which can seek investment and working capital loans from the financial institutions which are signatories to the agreement with HAMAG-BICRO.

The ESIF Capped Portfolio Guarantee can amount to 150,000 euro with a maximum guarantee rate of 80%. It is granted for a period of one to ten years per individual loan or leasing from the portfolio. The financial instrument is intended to make loans and other credit forms more available to small businesses, to lower interest rates and the insurance instruments sought, increase employment and increase private investments.

Economy Minister Darko Horvat said that a project similar to the one introduced today had been introduced at the Croatian Bank for Reconstruction and Development (HBOR). "The ministry will ensure EU funds and give HBOR the opportunity to create a credit line for micro, small and medium businesses with an additional 414 million kuna," Horvat said.

Regional Development and EU Funds Minister Gabrijela Žalac told representatives of the banking industry that everyone had to work faster on absorbing EU funds for the business sector. The five financial instruments made available so far have secured 180 million euro for financial support to small and medium businesses, Žalac said.

Speaking of the instrument introduced yesterday, she said that 28 million euro was a contribution from ESIF while the national contribution amounted to 30 million euro.

Want to read more about Croatia’s economy? Click here.

ZAGREB, October 31, 2018 - Croatia slid 7 places to 58th place in the World Bank's latest Doing Business report covering 190 countries, and while last year it ranked 51st with a score of 77.70 points out of 100, this year it earned 71.40 points.

According to the report entitled "Doing Business 2019: Training for Reform", which was published on Wednesday, Croatia has the poorest performance in "Dealing with Construction Permits", plunging from 126th place to 159th place. It also slid in the "Starting a Business" segment, from 87th place last year to 123rd this year.

Croatia has improved performance in "Registering Property", moving up eight places to rank 51st. It also moved up in the "Getting Electricity" segment, from last year's 75th place to 61st place this year. Croatia also made progress in "Paying Taxes", going up from 95th to 89th place.

Measured by the "Getting Credit" criterion, Croatia fell from 77th to 85th place. It also regressed in "Protecting Minority Investors", from 29th to 38th place and in "Enforcing Contracts", slipping two places down to rank 25th.

Croatia ranked best in "Trading Across the Borders", scoring the maximum 100 points and top position, just as it did last year.

The overall ranking was topped by New Zealand, Singapore and Denmark. Hong Kong moved upward by one notch to fourth place, and South Korea fell from fourth to fifth place. Macedonia returned to the top 10 this year, inching up one spot to 10th place and displacing Sweden to 12th position.

Economy Minister Darko Horvat said on Wednesday that the latest World Bank Doing Business report clearly showed what Croatia was bad at and what should be changed, adding that by introducing the possibility of starting a business electronically, on which his ministry was working, Croatia would go up 10 places in the World Bank ranking.

"We are aware of the sore spots of the national economy and of the fact that some countries, notably those in our neighbourhood, make more radical and faster changes. The Doing Business report also gives us a clear signal in terms of what we are bad at and what we need to change," Horvat told reporters.

Horvat said that for the past two months he had been working with the ministers of public administration and justice on a specific, radical measure to remove all administrative barriers when starting a business in Croatia electronically, which is the segment where Croatia dropped the most in the Doing Business ranking. "Starting a business electronically will include the opening of a bank account, electronic payment of the necessary taxes without any physical signature. Once this is introduced, I am confident that it will help Croatia go up 10 places in the ranking."

In a message to investors, Horvat said that at the moment his ministry, the Croatian Employers Association and all interested business entities were working on two action plans that should be implemented in 2019 and result in the removal of many administrative barriers and alleviating the tax burden on businesses by removing non-tax levies in the amount of around one billion kuna.

The Croatian Employers' Association (HUP) director-general Davor Majetić, commenting on Wednesday on the latest World Bank's Doing Business Report, said that changes are happening in the country but they were too slow and insufficient to trigger significant headway required to make the national economy more competitive.

It is evident that the countries in the neighbourhood are undergoing changes much faster than we are and it is more and more difficult for our companies to compete with peers from those countries, he said. "We expect the government to keep implementing the reforms it has launched and to intensify efforts in conducting all other reforms needed to enhance the country's business climate."

To read more about Croatian economy, click here.

ZAGREB, October 23, 2018 - Conducting an economic policy dictated by the European Commission without taking account of the country's specific features, the absence of reforms, a low employment rate and a weak manufacturing sector are just some of the reasons why Croatia is lagging behind other post-transition countries of the European Union, a conference was told in Zagreb on Tuesday.

ZAGREB, October 3, 2018 - At the end of the second quarter of 2018, Croatia's gross foreign debt was 40.1 billion euro, or 80% of GDP, according to central bank figures, and Raiffeisenbank Austria (RBA) analysts predict that the foreign debt-to-GDP ratio will fall below 80% by year's end.

ZAGREB, October 1, 2018 - The gross financial assets of Croatian households increased by 2.6% in 2017, their weakest growth in six years and far below the regional average, the Allianz insurance company says in its ninth Global Wealth Report.