ZAGREB, March 10, 2020 - Croatia's commodity exports in January 2020 totalled HRK 8.3 billion, up by 0.4% compared to January 2019, while the imports rose 1.3% to HRK 14 billion, according to provisional data provided by the national statistical office (DZS) on Tuesday.

As a result, the country's foreign trade deficit was HRK 5.7 billion, which is by 154.3 million kuna more than in January 2019.

The coverage of imports by exports went from 59.9% to 59.4%.

Croatia's exports to other EU member-states rose by 3.6% to over six billion kuna on the year.

On the other hand, exports to non-EU members fell 7.2% to HRK 2.3 billion.

The imports from EU members increased 1.3% to HRK 11.5 billion, and from non-EU members by 1.5% to HRK 2.6 billion.

Expressed in euros, Croatia's commodity exports in January 2020 totalled €1.1 billion, down 0.2% on the year, while imports went up 0.8% to €1.9 billion.

The foreign trade deficit was €765.7 million, as against €748.8 million in January 2019.

The latest data on exports and imports in the whole of 2019, show that Croatia's commodity exports in 2019 totalled HRK 114.2 billion, up 5.8% on the year, while imports reached HRK 184.3 billion, an increase of 4.6%.

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ZAGREB, February 28, 2020 - Croatia's economy grew by 2.5% in the fourth quarter of 2019 compared to Q4 2018, which is a lower rate than in Q3, when economic growth was at 2.9%.

The national statistical office (DZS) on Friday published its preliminary estimate, which shows that GDP saw an annual increase of 2.5% in Q4 2019, the 22nd consecutive quarter to see an increase in GDP albeit lower than in the previous quarter.

In 2019 GDP grew by 2.9%, which is more than the year before, when the growth rate was 2.65%.

The faster GDP growth in 2019 was mostly owing to a strong, 4.1% increase in the first quarter, while in the second quarter GDP grew 2.4% and in the third it rose 2.9% on the year.

The biggest positive contribution to GDP growth in Q4 2019 came from an increase in the export of goods and services and household consumption, the DZS says.

On the other hand, the contribution of net external demand was negative.

Household consumption in Q4 grew by 4% compared to the same period of the year before, which is a faster growth than in Q3, when household consumption grew by 3.1%.

The export of goods and services grew in Q4 by 5.6% on the year, which is higher than the 5.1% growth recorded in the previous quarter.

The export of goods grew by 2.1% and the export of services jumped by 12.1%.

The import of goods and services rose by 0.1% on the year, much less than in the previous quarter, when it rose by 4.3%.

The import of goods rose by 0.8% while the import of services dropped by 3.1%.

In Q4, investments in fixed assets rose by 4% on the year, which is a decrease compared to a 5% increase in the previous quarter.

Government spending also grew in Q4, by 3.5% on the year, which is faster than in Q3, when government spending grew at a rate of 2.9%.

According to seasonally adjusted data, GDP in Q4 grew by 0.3% compared to the previous quarter while on the year it grew by 2.7%.

The GDP growth rate is higher than the EU average considering that Eurostat recently said that the EU economy in Q4 2019 grew by 1.2% on the year and by 0.1% on the quarter.

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ZAGREB, February 27, 2020 - After five years of economic recovery, Croatia's GDP in 2019 reached the pre-crisis level but compared to the European average, Croatia did not converge from 2008 to 2018, reads a report the European Commission published on Wednesday.

The report also notes that Croatia has continued making progress in correcting macroeconomic imbalances but that they are still present.

As part of its European Semester Winter package, the EC published reports on the overall economic and social progress in each member state and an analysis of the macroeconomic situation in the countries with macroeconomic imbalances or excessive macroeconomic imbalances.

The report on Croatia has 79 pages, including annexes.

The EC notes that a stable economic growth in the last five years, combined with a careful macrofiscal stabilisation policy has made it possible for the country to gradually reduce the high levels of public, private and foreign debt, which in turn has reduced the economy's vulnerability.

The unemployment rate has continued to fall, thereby raising the disposable income of households. However, in 2018, Croatia’s GDP per capita relative to the EU average was still at the same level as ten years earlier, meaning that there was no convergence at all.

GDP per capita, measured by the purchasing power, in 2018 was 63% of the European average, the same as in the pre-crisis 2008. Moreover, Croatia has fallen behind even more in relation to more advanced comparable countries of Central and Eastern Europe, which have left it behind. Despite a stable growth, a relatively low growth potential will continue to be an obstacle to catching up with other EU countries.

Participation in the labour market and labour productivity remain low, and the business environment and the public administration are insufficiently supportive of faster economic convergence. Implementation of policy measures addressing these weaknesses is proceeding at an uneven pace.

"Addressing structural weaknesses with lasting effect would enable Croatia to converge faster to the rest of the EU," the EC stresses.

Croatia has made limited progress in addressing the 2019 country-specific recommendations and, just as in 2019, it has macroeconomic balances. In 2019 Croatia left the category of countries with excessive macroeconomic imbalances to enter the category of countries with macroeconomic imbalances.

Since the start of the European Semester in 2014, 57% of all country-specific recommendations addressed to Croatia have recorded at least 'some progress'. 'Limited' or 'no progress' has been made in the remaining 43% of the recommendations.

Implementation of the reform agenda has proceeded at an uneven pace in different policy areas.

Most progress has been made on fiscal policy and labour market. There has been some backtracking on pensions after elements of the reform designed to increase the statutory retirement age were suspended as demanded by trade unions, the EC says.

In 2019 Croatia saw limited progress in the implementation of the EC recommendations.

Certain progress was recorded in the implementation of the curricular reform and the management of state agencies.

Certain progress was made with the adoption of a new set of active employment measures.

In 2019 agreements on some key rail transport projects were signed, which contributed to progress on sustainable transport.

Certain progress has been made in court proceedings by expanding electronic communication in courts and reducing backlogs.

As regards the business environment, improvement has been achieved by introducing a number of measures designed to reduce administrative obligations and liberalising services.

Progress has been limited in other areas, such as reinforcing the budgetary framework, improving the social protection system, reforming wage setting frameworks, improving corporate governance and intensifying the divestment of shares and stakes in state-owned enterprises, and in the prevention and sanctioning of corruption.

Macroeconomic imbalances

Croatia has been making progress on macroeconomic indicators but it still has macroeconomic imbalances. In 2019 it exited the category of excessive macroeconomic imbalances.

Public debt remains high, but is falling rapidly. Public finances have improved and Croatia recorded its first fiscal surplus in 2017, and its second in 2018, despite a non-negligible materialisation of contingent liabilities.

Thanks partially to improvements in public debt management, debt is being refinanced at record low and predominantly fixed rates, with extended maturities.

The improvements in public finances were recognised by Fitch and S&P agencies as they upgraded Croatia's long-term sovereign credit rating to investment grade.

Improvements have been recorded also in household debt.

The consolidated corporate and household debt levels for the third quarter of 2019 are estimated at 58.4% and 34.3% of GDP respectively, some 24 and 8 percentage points below the peak registered in 2010.

Although the current account surplus is shrinking, it is still helping to curb external imbalances.

After peaking at 3.3% of GDP in 2017, the current account surplus narrowed to 1.9% of GDP in 2018, as the increase in imports of goods turned the trade balance negative.

The current account surplus rebounded in the first three quarters of 2019 to 2.2% of GDP largely due to growing tourist receipts.

Low potential growth remains an obstacle to Croatia catching up with the rest of the EU more rapidly, says the EC.

After reaching a low point in 2010, potential output growth has since increased significantly, estimated at 2.1% in 2019. Although this is higher than the EU average, it is the lowest among peer countries.

The labour contribution to potential growth turned positive in 2019, due to a gradual recovery of employment, though it remains one of the lowest among peers. Demographic trends and a chronically low activity rate are a drag on labour contribution to growth for future years.

"Significant structural reforms will be necessary to increase Croatia's relatively low potential growth," the EC notes.

Potential growth is projected to remain the lowest among Croatia's peers throughout the 2019-2021 period.

Despite improvements in the labour market, increasing the labour contribution to potential growth will require raising the low activity rate, which will be difficult, notably because of the demographic challenges in the country.

Productivity growth is still limited due to poor allocative efficiency, complex business environment and public sector inefficiency, the EC says.

As for tax policy, the EC says that Croatia’s taxation system is strongly skewed towards indirect taxation and is Croatia is among the member states which collect the least revenue from direct taxes.

This is partly a consequence of very low property taxes, which are considered to be among the most growth-friendly taxes.

The low share of direct taxation is also a reflection of successive cuts in the personal income tax implemented over the past four years.

Aimed at reducing the tax burden on labour, the cuts have resulted in more than half of persons in employment not being liable for any personal income tax.

Still, Croatia ranks around the EU average when it comes to revenue from social contributions in proportion to GDP, despite having the third lowest employment rate in the EU.

At the same time, Croatia collects the highest share of VAT revenue in proportion to GDP of all EU member states.

In cooperation with Croatia, the EC has prepared a special annex on the health system, which says that despite the strong increase in revenue from health contributions, the healthcare sector continues to accumulate arrears.

The revenue of the Croatian Health Insurance Fund (CHIF) is estimated to have increased by 11% (year-on-year) in 2019. In spite of this, payment arrears to suppliers of goods and services are estimated to have grown by over 15%. Furthermore, expenditure is expected to grow strongly in 2020 on the back of wage increases in the sector agreed in September 2019 and the Supreme Court ruling from December 2019 which upheld doctors' claims on unpaid overtime.

Arrears are mostly generated in hospitals, particularly those owned by counties.

Faced with the prospect of suppliers suspending deliveries, the central government settles such arrears through ad hoc financial recovery programmes. There have been 12 such interventions since 2000, ranging from 0.1 to 0.6 per cent of GDP in a given year, the EC says.

With regard to the fight against corruption and organised crime, the EC says that control and sanction mechanisms are weak, notably at local level.

Although there is a considerable number of investigations and indictments in cases related to organised crime and corruption, the inefficiencies of the justice system, such as lengthy court proceedings, often impede closure. Official statistics also show that a significant proportion of corruption offences are recorded at local level.

The Law on Local and Regional Self-Governance, which gives elected local officials considerable discretion in decision-making without subjecting them to asset declarations or other forms of oversight, remains a concern.

The discretionary powers to decide on disposing of assets and finances of up to HRK 1 million and to appoint board members of public local companies create scope for corruption, the EC says.

With regard to environmental sustainability, the EC notes that there is still a long way to go in the transition from a linear to a circular economy in Croatia. Besides some isolated initiatives, Croatia has no comprehensive circular economy strategy, it says.

Despite some progress, shifting waste from landfilling towards recycling remains a priority.

In Croatia, 25% of municipal waste was recycled in 2018 - a big improvement from 4% in 2010, but still substantially below the EU average of 47%. Landfilling of municipal waste remains high at 66% (EU average 22%).

A continued strong effort would help Croatia to converge to the EU average and ultimately contribute to achieving the European target of zero pollution, the EC says.

The EC also notes that air pollution has a significant impact on people's health, that sewage systems are underdeveloped and that the water supply networks face high leakage rates.

As for greenhouse gas emissions, Croatia will have no problem meeting the EU targets for the period until 2020 but it will need additional measures to meet the targets set for the period until 2030.

The share of renewable energy sources is 28%, but in traffic it is very low, standing at a mere 3.9% in 2018, one of the lowest rates in the EU, the EC says.

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

ZAGREB, February 24, 2020 - Croatia's Gross Domestic Product (GDP) reached €11,893 per capita in 2017, with only the City of Zagreb and three coastal counties surpassing the national average, data from the National Bureau of Statistics shows.

Zagreb's GDP per capita was three times as high as that of Virovitica-Podravina County, which was the lowest.

Expressed in the national currency, the kuna, Gross Domestic Product per capita in 2017 amounted to 88,726 kuna, which is a nominal growth rate of 5.4% compared with 2016, while the growth rate in euro is 6.4%.

Statistics also show that Croatia's Gross Domestic Product per capita was 61.7% of the EU28 average.

The highest GDP per capita in 2017 was recorded in the City of Zagreb, reaching €20,850, which is 75.3% above the national average. Zagreb was also the only administrative unit in Croatia which had a Gross Domestic Product per capita higher than the EU28 average, namely 8.2% above the average.

Only three other counties, notably those on the Adriatic coast, had a GDP above the Croatian average. Istria County's GDP per capita was €14,866, 25% above the national average, Primorje-Gorski Kotar County had a Gross Domestic Product per capita of €14,526, 22.1% above the national average, while Dubrovnik-Neretva County surpassed the national average by 5.7% with a Gross Domestic Product per capita of €12,575.

More news about economic growth can be found in the Business section.

ZAGREB, February 21, 2020 - Croatia's annual inflation rate, as measured by the consumer price index, was 2.0% in January 2020, the National Bureau of Statistics (DZS) said on Friday.

The annual rise in consumer prices was mostly driven by the rise in transport prices (+4.9%), on the back of the rise in prices of fuels and lubricants for passenger vehicles (+9.8%). This was the result of a considerable drop in prices of Brent crude oil at the end of 2018, analysts at Raiffeisen bank (RBA) said.

Compared with January 2019, prices of food and soft drinks increased by 3.4%, with prices of meat going up by 8.6% and those of fruit by 11.7%. Prices of housing, water, electricity and gas were 1.6% higher and those of hotel and restaurant services were up 2.7%.

Year on year, consumer prices rose, albeit at a slower rate, in all other categories except recreation and culture, which recorded a decrease of 0.4%.

Excluding energy, consumer prices increased by 1.6% overall, and without energy and food, they were 0.7% higher.

Compared with December 2019, consumer prices fell by 0.3% on average.

More economy news can be found in the Business section.

ZAGREB, February 21, 2020 - A total of 228 counterfeit kuna banknotes were withdrawn from circulation in the second half of 2019, a 3.4% decrease compared with the same period in 2018, while the number of counterfeit euro notes increased by more than 14 times to over 4,000, the Croatian National Bank (HNB) said on Thursday.

Between July and December 2019, 4,056 counterfeit euro notes were withdrawn from circulation in Croatia, which is an increase of 1,323.2% compared with the same period in 2018 when 285 such notes were removed from circulation, the central bank said.

The majority of counterfeit banknotes, 3,771 or 93%, were 500-euro notes.

A total of 4,341 counterfeit banknotes of all currencies were registered in the second half of 2019, an increase of 608.2% over the same period in 2018.

"Despite a higher nominal value of registered counterfeit euro banknotes, counterfeits registered in the second half of 2019, as regards their quantity and production quality, did not cause any disturbances in cash operations, neither in specialised institutions nor among the general public," the central bank says.

More economy news can be found in the Business section.

ZAGREB, Feb 20, 2020 - Croatia's economy has performed well, but convergence with the EU needs to accelerate, hard-won fiscal gains are fragile and should be carefully preserved, and a more dynamic state is vital for future economic prospects, are some of the assessments of the International Monetary Fund (IMF)

The Executive Board of the International Monetary Fund (IMF) concluded the IMF Article IV consultation with Croatia at the end of last week, and a press release and a comprehensive report by the IMF Mission were published at the IMF website on Wednesday.

The IMF Mission visited Croatia from 3 to 16 December last year within the framework of yearly consultations with member states, and they published their final statement at the end of their visit.

In a press release published today, the Executive board emphasised that Croatia experienced its fifth consecutive year of solid economic growth, once again driven largely by private consumption and tourism. The economic growth is expected to moderate, the says the IMF adding that both public and external indebtedness are due "to continue their declining trajectories."

"The pace of fiscal consolidation in 2019 continued to slow, with the budget estimated to be close to balance. Recently agreed wage increases in the public sector are expected to increase current spending in 2020. Even though revenues will remain buoyed by economic activity, the budget balance is expected to turn into a small deficit in 2020, in part due to additional tax cuts," it was stated in the IMF Executive Board's press release, where it was also noted that contingent liabilities could also pressure budget balances in the coming years.

The IMF Executive Board also noted that Croatia was currently targeting ERM II entry in mid-2020, and eventually the Euro Area.

The Executive Board stressed that the Croatian economy had performed well, but convergence with the EU needed to accelerate.

"The Croatian economy has become stronger over the last five years. This is significantly because of strong budget management and skilful policies by the Central Bank. As a result, public debt has fallen along with interest rates, creating room for a robust consumption-led private sector expansion," the IMF stated.

The Fund's experts assess that unemployment was down, wages were growing, and inflation remained subdued.

"Yet, Croatia has barely reduced its distance with the EU average in terms of income per capita in the last decade, and emigration of the young continues to pose challenges."

The IMF Executive Board also assessed that "hard-won fiscal gains are fragile and should be carefully preserved".

"While public debt ratios continue to decline due to buoyant activity, fiscal performance has recently become encumbered by numerous spending demands," stated the IMF, adding that for this reason, the members of the IMF Mission support the Croatian government’s decision to withhold the planned reduction in the overall VAT rate.

The IMF Executive Board also assessed that "a more dynamic state is vital for future economic prospects".

"The budget is currently too rigid and losing its capacity to spark economic growth," emphasised the IMF.

"Better absorption of EU funds could ease this shift in priorities but cannot substitute for deeper reforms to the cost structure of public administration, pensions and healthcare systems, and the fiscal and territorial relationships between different levels of government," accentuated the IMF.

They also point out that state-owned enterprise management and performance needs more modernization and that "accelerating the digitalisation of public administration and using technological improvements to better target social-benefits would also help make the state more dynamic".

The Executive Board also evaluates that "renovating the capital stock and enhancing the business climate will help raise potential growth".

They also noted that recent improvements in streamlining the administrative and fiscal burdens on the business sector were welcome, but that members of the Mission also encouraged further progress in the areas of enhancing digital public services and adapting legislation to facilitate Croatia’s integration in the EU’s Digital Single Market.

More economy news can be found in the Business section.

ZAGREB, February 18, 2020 - Finance Minister Zdravko Marić said on Tuesday that the economic situation in Croatia is satisfactory but that further reforms are necessary given the always present question of how sustainable the existing situation is.

"Progress is necessary because even though the current economic situation is satisfactory, with a growth rate of around 3%, balanced public finances, a current account surplus and a further drop in public debt, there is always the question of the sustainability of such a situation," Marić told reporters who after a meeting of EU finance ministers in Brussels asked him what he expected of the report on macroeconomic imbalances in the EU which the European Commission is expected to publish soon.

The minister went on to say that the global financial crisis of several years ago showed that things can change rapidly and that it was necessary to constantly work on structural reforms.

"As far as Croatia is concerned, monetary and fiscal policies have yielded and will continue to yield results, but focus must now be on reforms," he said.

Marić expressed the belief that the report to be released by the EC next week would recognise the progress made but that Croatia had to focus on the recommendations which it had not implemented yet.

He called for launching a public debate on the health care system and on the dependence of the national economy on imports, with a systematic approach and with as little populism as possible.

Asked which reforms he considered the most important, Marić cited the issue of wages and bonuses, the organisation of work in the state and public administration, reform of the health sector as well as of the judiciary, which, he said, should be more at the service of the business sector.

Speaking of ECOFIN, Marić said that the EC was today given recommendations for the 2021 budget, which is the first budget to be drafted as part of the new multiannual financial framework.

"I expect the multiannual financial framework to be adopted in the coming period and the EC to make a draft budget for 2021 in May or June," Marić said.

Answering a reporter's question, Marić said that today's ECOFIN meeting also included an informal discussion on the process of selection of the new head of the European Bank for Reconstruction and Development (EBRD).

The current EBRD president Suma Chakrabarti's term expires in May this year.

Marić said the dialogue on the matter would continue, primarily at the level of finance ministers. "I cannot speak or speculate about the candidates at the moment," he said.

He recalled, however, that with regard to the EBRD as well as the European Investment Bank (EIB), a debate had been launched about the EU's new financial architecture.

"The selection procedure for the EBRD president should be viewed in a broader context. As a country with long-lasting membership in multilateral organisations, including the EBRD, Croatia wants activities in countries where the EBRD has been active so far to continue, but we will take into account also new proposals regarding the new financial architecture and expansion to some other countries of the region," he said.

The EBRD signed its first agreement in Croatia in 1994 and so far it has supported 211 projects worth more than €3.8 billion.

More economy news can be found in the Business section.

ZAGREB, February 13, 2020 - The European Commission on Thursday stated that Croatia's real GDP growth "is estimated to have risen to 3.0% in 2019", as against the previous forecasts of 2.9%, assessing that in 2020, the economy will grow at a rate of 2.6% and in 2021 at 2.3%.

"After a weak 2018, real GDP growth in Croatia is estimated to have risen to 3.0% in 2019," the EC says in its latest Winter 2020 Economic Forecast.

"Domestic demand strengthened, driven by a noticeable pick-up in investment and government consumption expenditure, while continued improvements in the labour market and low inflation underpinned private consumption," reads the report issued on Thursday.

"Even though exports rebounded sharply, their growth was outpaced by imports.

"Economic growth is expected to moderate as GDP is forecast to expand by 2.6% and 2.3% in 2020 and 2021, respectively," reads the latest report and while the previous economic forecast by the EC, issued on 7 November 2019, estimated that Croatia's economy is likely to expand at the same rate of 2.6% in 2020 and at the rate of 2.4% in 2021.

The EC expects domestic demand to remain the main driver of growth in both years.

"Household consumption growth is expected to inch down but remain supported by rising real disposable incomes as unemployment, already at record low levels, is expected to further decline," says the EC.

"Investment growth is expected to remain strong, supported by a growing volume of maturing EU-funded projects from the 2014-2020 programming period.

"Export growth is set to moderate, in line with lower growth in Croatia’s main trading partners, trade uncertainties and the limited scope for further growth in the tourism sector. Import growth should be underpinned by still strong domestic demand but is Expected to decline in both 2020 and 2021.

"After improving in 2019, the contribution of net exports to growth is expected to deteriorate in 2020 before stabilising in 2021,” reads the Croatia report from the latest Economic Forecast.

"The HICP inflation rate halved in 2019 compared to 2018, due to negative inflation for unprocessed food price, resulting from changes in the applicable VAT rate. With the VAT change effect dissipating, wage pressures in the labour market and strong domestic demand are expected to fuel a pick-up in inflation in both 2020 and 2021, despite the assumed decline in energy prices Core inflation is thus expected to increase even more. Inflation is forecast at 1.5% and 1.7% in 2020 and 2021 respectively," the EC concluded.

More economy news can be found in the Business section.

ZAGREB, February 13, 2020 - The available monthly indicators suggest that Croatia's real GDP growth slowed in the fourth quarter of 2019, while the labour market continued to see favourable trends, including increased employment and wages and a fall in unemployment, the Croatian National Bank (HNB) Council said a statement on Wednesday.

The HNB Council met to discuss the latest monetary and economic trends and analyse the financial stability of the banking system in the last quarter of 2019.

Inflation picked up from 0.7% in November to 1.4% in December, mostly due to food prices, notably a strong increase in pork prices, and oil prices.

Financing costs mainly continued to decrease as a result of the accommodative monetary policy.

The annual rise in bank loans accelerated to 4.2% at the end of 2019 on the back of the rise in household and corporate loans. At the same time, the annual rise in loans to non-financial companies was mostly due to the fading of the negative effect of the activation of state guarantees for shipyards in late 2018.

The available fiscal data for the third quarter of 2019 indicate a continuation of favourable trends in public finance as budget revenues grew faster than expenditures, the statement said.

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