ZAGREB, 13 July 2022 - Real GDP growth could be 5.5% this year and 2.5% in 2023, while inflation could slow down from this year's 9.4% to 4.6% in 2023, the Croatian National Bank (HNB) said on Wednesday.

According to the HNB's summary of macroeconomic trends and estimates, the economic repercussions of the Russian invasion of Ukraine, the continued rise in energy and raw material prices, and the disruption of global supply chains have not seriously affected Croatia's economic growth outlook.

However, unfavourable global circumstances and pronounced inflationary pressures could have a bigger impact on domestic economic trends in 2023, when real domestic activity growth is expected to slow down to 2.5%.

The risks remain pronounced in the projected period 2022-23, with the prevalence of risks that could have a negative impact on economic growth, such as a gas embargo, food and energy price hikes, tighter financing conditions than expected, and a deterioration of the COVID situation.

HNB governor Boris Vujčić told the press that growth in Q2 this year was expected to be stronger than in Q1, when it was 7%, the tourism season was expected to make a very strong contribution in Q3, and "solid growth" was expected in Q4.

He said Q4 was much more uncertain and that for the most part, it depended on developments on the energy market, and whether there would be a gas embargo for Europe, which would significantly change the economic outlook for Q4 and 2023.

Vujčić said a recession was possible next year, mainly due to a stoppage in gas deliveries to Europe. The recession could first occur in Croatia's main trade partners, Germany and Italy, and then spill over to Croatia, he added.

As for this year's tourism season, he said arrivals were almost the same as in 2019, while accommodation and hospitality prices increased by 20 to 30%, which would point to a record tourism season financially.

Inflation in June surpasses 11%

This year's inflation of consumer prices could accelerate to 9.4%, first and foremost as a result of considerably higher global energy and raw material prices, the HNB says. On the domestic market, energy and food prices continue to increase the most, but the increase in prices of other goods and services is gradually accelerating, too.

Vujčić said inflation was expected to increase to over 11% in June, that during the summer it should be at 11% or 12%, while it was expected to start slowing down at the end of this year and especially at the start of 2023.

The growth of the main inflation sub-components is expected to slow down in 2023 and total inflation as well, to 4.6%. However, this forecast hinges on the stabilisation and, later this year, the gradual decrease in energy and raw material prices on the global market, according to the HNB.

Inflation projections for this year and the next are dominated by risks that could increase it further, including higher energy and raw material prices and a more pronounced salary growth.

Vujčić said the fight against inflation envisaged higher interest rates and that the European Central Bank announced that this could begin this month already. "I expect this to continue in the autumn."

The goal is for HNB and ECB interest rates to be the same as of 1 January 2023 and Croatia's accession to the euro area, he said.

Mandatory reserves to be reduced to 1%, no more foreign currency claim obligation

The HNB Council decided today to reduce banks' rate for calculating mandatory reserves from 9% to 5% this August and from 5% to 1% in December, which is the mandatory reserve rate in the euro area, Vujčić said.

He also decided that the minimum amount of foreign currency claims be reduced from 17% to 8.5% in August and abolished in December.

The effect of the first measure will be the release of HRK 34.2 billion in mandatory reserves, while the second will allow banks to release or differently dispose of €5 billion, Vujčić said.

Historically low interest rates

He said today's decisions would also affect interest rates by making financing cheaper for banks, so they would have fewer reasons to raise them, notably on new loans. They can reduce them further, depending on their business policy, he added. "But we'll see where we are at the start of next year."

Vujčić said interest rates in Croatia were historically low, while those in EU countries outside the euro area were considerably higher, twice as high for housing loans.

Decrease in real and increase in nominal pay

This year, employment is expected to continue to grow and unemployment to fall, with an increase in nominal and a decrease in real pay.

Vujčić said the current situation on the labour market was unusual, given that the private sector was recording a strong rise in nominal pay, about 10%, mainly due to the difficulty to find qualified labour, while wage increases in the public sector were slower.

Looking at the two sectors together, the growth in wages is somewhat lower than that of inflation, and this year real pay is expected to drop 1.5-2%, Vujčić said, adding that wage increases were expected to be at the level of inflation growth only in the private sector.

Euro area and Schengen additional incentive to foreigners to buy real estate

Speaking of the real estate market, Vujčić said property prices in Q1 were 13.5% higher year on the year and that the increase was also due to very low interest rates on savings, which are even negative in neighbouring countries, prompting foreigners to buy due to the higher yield.

The increase in property prices is also due to the government's subsidised housing scheme as well as the acceleration of inflation.

Vujčić said Croatia's accession to the euro and Schengen areas would be an additional incentive to buy real estate. On the other hand, if the rise in ECB interest rates also affects those on deposits, this rise should also reduce the incentive to buy real estate, but this can't happen overnight, he added.

Market activity could slow down due to the expected tightening of financing conditions and unfavouable income trends.

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ZAGREB, 21 Oct 2021 - Croatia's gross international reserves reached €24.4 billion in September 2021, their highest level to date, increasing by €300 million or 1.3% from August, according to the data provided by the Croatian National Bank (HNB).

The increase was mostly the result of the government's foreign currency deposits with the HNB following the disbursement by the European Commission of €818.4 million as an advance payment for the purposes of the National Recovery and Resilience Plan.

Gross international reserves have increased by €5.4 billion or 28.6% since the start of the year.

All adequacy indicators of the country's gross international reserves suggest that they are sufficient to ensure the smooth running of the central bank's monetary policy.

Net reserves remained almost the same as in August, at €19.5 billion, the HNB said.

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ZAGREB, 29 April, 2021 - Most banks in Croatia still do not see climate change as a serious threat to their business, a survey carried out by the Croatian National Bank (HNB) showed on Thursday.

The survey was presented as part of an online conference called "The Role of Banks in Greening Our Economies", organised by the HNB and the European Bank for Reconstruction and Development (EBRD).

The survey, carried out among 20 Croatian banks, showed that the banks did not see climate change as an immediate and serious threat to their business.

Only one bank said that climate change would have a generally significant impact on the Croatian banking system, 11 banks said that the impact would be moderate, while eight said that it would be insignificant.

Only two banks have a climate change-related strategy included in their overall business strategy, expressing concern about risks and anticipating possible changes to the regulatory framework. On the other hand, 15 banks said they were waiting for the regulators to take the initial steps in this regard.

Responding to the question about risk materialisation, 10 banks said that climate risks would not materialise in the near future, while 11 said they were not attaching major importance to exposure to climate change and environmental risks to their portfolio.

Physical risk includes the financial impact of climate change, and five sectors in Croatia are particularly vulnerable to it - tourism, agriculture, forestry, fisheries and energy distribution. More than a quarter of Croatian banks' exposures to non-financial institutions concern these sectors, mostly tourism, the survey showed.

However, none of the banks has so far assessed its exposure to climate and environmental risks, citing lack of reliable data and methodology as well as lack of qualified staff.

The sectors facing the biggest transition risk from climate change are transport and traffic, agriculture, motor vehicles, energy and oil products, and construction.

Only 9 banks offer green product to their customers

Most banks recognise opportunities brought by the transition to a low-carbon economy, with three-quarters of them saying they could benefit from this transition by financing green projects. However, only nine banks said they were offering a green product to their customers, such as loans for the energy renovation of buildings or the purchase of electric vehicles.

 HNB Governor Boris Vujčić said in his opening remarks that both the HNB and EBRD had acknowledged their responsibility for highlighting the role of banks in the climate transition. He recalled the Paris climate change agreement of 2015, which has been ratified by 189 countries, saying that it set ambitious goals to reduce greenhouse gas emissions and prevent further global warming.

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ZAGREB, 1 April, 2021 - Croatia's general government debt reached HRK 329.7 billion at the end of 2020, an increase of 12.6% compared with the end of 2019, with the general government debt to GDP ratio rising to 89.1%, the latest Croatian National Bank (HNB) data shows.

At the end of December 2020, the general government debt increased by HRK 526 million (+0.16%) from the previous month and by 36.8 billion (+12.6%) from December 2019.

At the end of last year the total debt amounted to 89.1% of the annual GDP, compared to 72.8% at the end of 2019.

The general government debt to GDP ratio had been falling since 2014, when it stood at about 85% of GDP. After decreasing to 72.8% of GDP in 2019, the needs for financing the measures to combat the coronavirus outbreak and the GDP decline led to the general government debt to GDP ratio increasing to 89.1% in 2020.

The general government debt includes the domestic and external debt components of central government, social security funds and local government.

HNB analysts noted that the debt increase was mostly due to a rise in the domestic debt component, which had gone up by HRK 4.1 billion (+1.9%) since November 2020 and by HRK 26.0 billion (+13.2%) since December 2019.

At the end of December 2020, the general government debt totalled 223.7 billion on the domestic market, while the external debt component amounted to nearly HRK 106 billion. The external debt component fell by HRK 3.6 billion (+3.3%) month on month and increased by HRK 10.8 billion (+11.3%) year on year.

The general government debt structure is dominated by long-term debt instruments. At the end of December 2020, the debt comprised bonds (64.4%), long-term loans (29.1%), and short-term loans and securities (6.5%). Compared with December 2019, the short-term debt rose by HRK 8.4 billion (+63.1%), while the long-term debt increased by HRK 30.5 billion (+10,9%).

(€1 = HRK 7.5)

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Ivan Strinić will make a return to the football pitch! 

ZAGREB, July 11, 2018 - The parliament's Elections, Appointments and Administration Committee and Finance and State Budget Committee on Wednesday supported by a majority vote the proposed candidates for the leadership of the Croatian National Bank (HNB).

ZAGREB, March 21, 2018 - After reaching a record nominal high of 127 billion kuna in December 2017, total assets of the Croatian National Bank (HNB) declined by 3.3% or 4.2 billion kuna to 123 billion kuna in January 2018, while increasing by 9.6% or 10.8 kuna billion in comparison with January 2017, Raiffeisenbank (RBA) says in a report.

ZAGREB, February 22, 2018 - The Croatian National Bank (HNB) on Thursday published a reviewed list of systemically important credit institutions in the country, which includes eight banks.

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