March the 16th, 2021 - The Croatian working population has been dealt an extremely heavy blow by the ongoing coronavirus pandemic, especially given the fact that tourism is the country´s strongest economic branch and the vast majority of the Croatian working population works in a sector which is more or less closed down entirely at the moment.

The Croatian Government´s covid support which was sent out to employers and business owners in order to preserve jobs and prevent as many layoffs as possible has been utilised, but whether or not that will continue to be enough with no end in sight is becoming more and more of a burning question.

As Poslovni Dnevnik/Jadranka Dozan writes, although the total number of employees at the beginning of this year was lower than it was one year ago, in January, as well as in December, there was an increase in employment. Compared to the last quarter of last year, in the first month of this year saw an increase of 0.9 percent, with employers still receiving subsidies for preserving jobs for a significant number of employees in activities affected by the coronavirus crisis.

As such, back at the end of 2020, such economic measures covered 10.3 percent of the total number of the Croatian working population who are employed by a business entity, while in November, this percentage stood at 9.8 percent, and for example during the summer months (when the epidemiological picture was significantly better) it stood at about four percent.

At the same time, in the review of current labour market developments in the Croatian National Bank´s latest bulletin, it has been pointed out that the number of unemployed persons at the beginning of 2021 continued to decrease at an accelerated rate compared to the end of 2020 due to increased outflows from the Croatian Employment Service.

Despite this, the number of unemployed people across Croatia back in January was 25 thousand higher people than it was back during the same month last year. The administrative unemployment rate fell to 8.5 percent of the workforce in January, after standing at 8.9 percent back in December. Last January, that same rate was at 7.1 percent.

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March the 14th, 2021 - The ongoing coronavirus pandemic is the biggest global threat to the event and music industry the world has seen. This industry used to bring the tourism-reliant Croatian economy billions in annual revenue, and now that huge drop is being painfully felt.

As Marija Crnjak/Poslovni Dnevnik writes, the pandemic calls into question the survival of the organisation of concerts and music festivals across Croatia, a business that generated at least 4.5 billion kuna in revenue in the years before this crisis struck. In order to enable Croatian residents and the country´s guests to enjoy this very important part of culture in the future, it is necessary to establish a recovery fund in the field of concert activities, warned the Association of Promo Concert Organisers, whose members have not earned income for a year now.

They noted that concerts and music festivals, since the very announcement of the pandemic, were the first thing to be disabled and will more than likely be the very last thing to come back to life. The problem affects not only them, but also a number of other activities that live off the festivals themselves, from companies which deal with renting out professional stage equipment, to travel companies, security companies, hauliers, and even transport logistics. What once brought the Croatian economy billions without the country itself really having to do much now seems a very distant memory indeed.

"In the year dominated by the pandemic, there was no possibility for the safe organisation of concerts or music festivals in the format that audiences and musicians expect and have come to know so well, but professional concert and festival organisers in Europe were preparing to create preconditions for safe concerts and music festivals in the style of the ¨new normal¨, they pointed out from the association which, as part of the European network of professional organisers of concerts and music festivals, worked on the possibilities of the safe holding of concerts and music festivals during the pandemic.

The Promo Association believes that the recovery fund should provide the necessary liquidity incentive to companies in the concert industry of at least 10 percent of the turnover seen back in pre-pandemic, record 2019 so that Croatia does not simply become a concert desert on the European map.

"The main criterion of the recovery fund should be the strengthening of international competitiveness in order to maintain and improve the concert, club and festival scene with both quality and quantity. The recovery fund should keep the jobs of educated professionals in the concert industry and should also help rental companies,¨ they stated from the association and reminded that the vast majority of EU countries have already supported their concert industry throughout 2020 and will continue to do so in 2021. What gave the Croatian economy billions in annual revenue surely deserves the same.

Meanwhile, research is being carried out on measures by which we might be able to safely hold music festivals even in these dire, depressing pandemic conditions, and in addition to vaccines, rapid coronavirus tests are the most important tool, as we wrote recently.

At the level of the European working group, a study was prepared for the safe holding of music festivals, in the preparation of which, in addition to music professionals, scientists also participated. In addition to the study, scientific research has been conducted in Germany and Spain to test the risk of spreading the infection at concerts and festivals indoors, and research is underway in the Netherlands and Israel to confirm the hypothesis of safe large outdoor events. Further research has been announced in Spain, France and Germany with a larger number of respondents in the audience.

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March the 9th, 2021 - Croatian coronavirus state aid, introduced as part of an economic/job preservation package by the government, has helped many keep their heads about water during these unprecedent times. Many enterprises have now returned that money.

As Poslovni Dnevnik/Marija Brnic writes, Solin-based automotive component maker Ad Plastik is the first Croatian enterprise to publicly announce this year that it is returning its Croatian coronavirus state aid which was received last year, at a time when it was forced to suspend production due to the coronavirus pandemic and the subsequent lockdown.

In an interview with Jutarnji list, the President of the Management Board, Marinko Dosen, announced that he intends to return the 12.3 million kuna in Croatian coronavirus state aid that was used to secure the payment of employee salaries last year, with an explanation that last year ended with a slightly better result than initially expected.

However, it should be noted that in a week´s time, Ad Plastik is holding a general meeting of its shareholders at which one of the points will be the payment of dividends, in which the reason for the return of Croatian coronavirus state aid should also be sought.

Namely, one of the conditions for using the aforementioned economic measure is the obligation that the company will not pay out from its operating profit.

This condition was mentioned a few months after the virus first arrived in Croatia and was a reason as to why many companies quickly changed their minds and decided to return Croatian coronavirus state aid back to the government. Although, as it now seems, the main trigger for the return of the aid was nevertheless the fact that the list of all aid recipients would be made public.

According to the data we received from the Croatian Employment Service (CES), so far, 20,850 Croatian enterprises/employers have returned their Croatian coronavirus state aid, and the total amount that sat on that account after its return now stands at almost 206 million kuna. Since the beginning of the implementation of this measure, a total of 9.395 billion kuna has been paid out to companies to help them preserve jobs, of which 432 million kuna was for contributions to those in the second pension pillar.

Croatian coronavirus state aid was paid out to over 111 thousand employers and almost 684 thousand of their employees. The most common reasons for the refund of these benefits, as they have stated from the CES, was the withdrawal of support from their employer, and improperly paid support for sick workers at the expense of the HZZO in the month for which support was received, failure to meet income criteria or other criteria, the non-payment of wages to workers, wrong payments due to multiple requests and so on.

"Consequently, we would not list the payment of profits as the predominant reason for the decision to return the support by the employer," they pointed out from the CES.

The institution in charge of implementing Croatian coronavirus state aid for job preservation also says that they note that "voluntary returns mainly took place in the period from June to August 2020, while significant voluntary returns have not been noticed recently."

Among the first to return the aid in Croatia, but also on a wider, international level, was the popular Swedish furniture chain Ikea.

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March the 8th, 2021 - The Croatian banking system has had a lot on its already full plate trying to balance out the economic and financial situation caused by the ongoing coronavirus pandemic. As the situation unfolds and remains difficult to predict, it seems that the true extent of the damage done won´t be known for a few months yet.

As Poslovni Dnevnik/Ana Blaskovic writes, the first year of the pandemic for the Croatian banking system saw profit more than halved down to 2.7 billion kuna, and the decline in total income exceeded the correction of the country´s GDP. While the domestic economy as a whole sank by a deeply concerning 8.4 percent, bank inflows plunged one and a half percentage points deeper.

Operating results exceeded 7.3 billion kuna, which means that more than 4 billion kuna was frozen through various value adjustments and provisions. The director of the Croatian Banking Association, Zdenko Adrovic, went on to discuss this further.

In 2021, the growth of lending to companies and individuals is expected to accelerate in line with recovery announcements. Will moratoriums actually be enough? Moratoriums and other measures to help clients peaked at the end of August, when their value rose to almost 40 billion kuna, of which 60 percent went to companies.

"It´s the lion's share of liquidity that has remained with companies and the population through these moratoriums, which have helped keep the steep decline in GDP at these levels," Adrovic explained, noting that these currently paused repayments stand at around 32.5 billion kuna in total. Will that be enough for businesses and citizens?

Adrovic noted that according to the rules of the European Banking Authority (EBA), the length of such a moratorium is limited to 9 months and that they must end by the end of this year.

"More than 80 percent of clients whose moratorium has expired so far have continued to pay their obligations properly. If things return to normal, tourism will kick off again and then that should be enough," he said.

Last year, the Croatian banking system will remember three key characteristic trends of the coronavirus crisis - monetary expansion and government wage subsidies combined with the restraint (and inability) to spend in the private sector, all of which spilled over into strong growth in deposits that have been on an upward trajectory for the past five years.

At the end of December, citizens' savings rose by 6 percent, accelerated to 7 percent in January. Banks currently have around 226.3 billion kuna, as much as 14.6 billion kuna more than before the coronavirus pandemic struck. Interest rates remained low or slightly reduced, and the margin is stable at around 2.6 percentage points.

The average price of housing loans with a maturity of over 10 years is 2.9 percent, more expensive than in neighbouring Slovenia where citizens pay 2.28 percent and cheaper than the Czech Republic, where things stand at 3.52 percent. Finally, loans continued to grow despite the ongoing crisis. Companies were accumulating liquidity when facing an uncertain future, and a proverbial hole of over 30 billion kuna opened up for the state overnight.

Total retail loans rose by 2.3 percent, and although they pulled the brake on cash loans, housing recorded double-digit growth in the last quarter due to APN subsidies and post-earthquake remediation.

The Croatian Banking Association has pointed out that a comparison of credit growth rates in European Union member states shows that "Croatian banks are in the upper half of the distribution of credit growth rates to households and companies by country, and interest rates have remained low, as if Croatia has already adopted the euro."

In the first edition of Croatian Banking Association Review for 2021, in which esteemed Croatian economist Velimir Sonje analyses business over the last year, it is pointed out that with a drop in net profit of 53 percent, net interest income was lower by 5.7 percent, and net income from fees and commissions by 10.5 percent.

Although they cut costs, this adjustment was slower, so the net result before provisions was almost 19 percent lower. The dynamics spilled over into efficiency as measured by the cost-to-income ratio, which, after a long time of approaching 40 percent, sat firmly above the 50 percent threshold.

With a capitalisation of close to 25 percent, the Croatian banking system remains stable, they have already reserved significant amounts, but we will only have a true picture of bad loans and the impact of the ongoing coronavirus crisis at the end of June, according to the aforementioned Association.

Then, the EBA's coronavirus rule is set to expire, according to which moratoriums will not count as bad loans as they would otherwise.

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March the 4th, 2021 - Croatian travel agencies have been by far the hardest hit by the ongoing coronavirus pandemic as travel for tourism and leisure remains almost impossible. Luckily, but following many appeals, the Croatian Travel Agency Association has finally been heard by the government and state aid is on the way.

As Poslovni Dnevnik writes, the Croatian Travel Agency Association (UHPA) has welcomed the recently announced decision of the Croatian Government to include tourist agencies in the measures for state aid/compensation for endangered economic activities. Although better late than never, it is difficult to understand how those representing Croatia´s most lucrative economic branch were not taken care of far earlier.

"I´m going to say just one word - finally. Finally, the requests and appeals we´ve been sending out to the relevant ministry and the Croatian Government for months, warning of the difficult situation in which the tourism industry, and especially travel agencies find themselves find themselves, have borne fruit,¨ said Tomislav Fain, President of the Croatian Travel Agency Association.

According to the data of the Tax Administration and the Central Bureau of Statistics (CES), the average decline in the economic activities undertaken by Croatian travel agencies during 2020 was continuously above 85 percent. These utterly devastating results carry even more weight if we take into account the fact that these are mostly small and medium-sized family businesses that, in order to ensure the liquidity of the business, among other things, were forced to sell off their own assets.

The Croatian Travel Agency Association has therefore persistently sent out proposals for assistance and compensation models to the competent state institutions, following the example of other EU member states, which have adopted measures aimed exclusively at travel agencies and tour operators, aware of the gravity of the problem and the possible consequences of their illiquidity.

"None of us are happy with the helplessness we´ve found ourselves in, nor with the uncertainty from month to month as to whether the subsidies for preserving jobs will be extended, but we can't do this. Instead of planning spring trips across Europe and looking forward to the arrival of the first guests for the Easter holidays, we find ourselves in a situation where state measures are our only means of salvation. As, unfortunately, the end of the pandemic is not yet in sight, we´re faced with the problem of unrealised trips and we´re as such highlighting the need for changes in the legislation and the announced state aid programme, as it is extremely important in order to restore the damaged trust of our customers,¨ added Fain.

"Tourism as we knew it before the pandemic is now a thing of the past. While we´re dealing with our multiple existential problems and fighting for survival, the battle for each guest is well underway. It is high time that we all move from words to deeds and everyone in their segment needs to give their all and we need to justify the title we have given ourselves as the best destination in the Mediterranean,¨ concluded the President of the Croatian Travel Agency Association.

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February the 27th, 2021 - Croatian Prime Minister Andrej Plenkovic has worked to clear up doubts surrounding the continued job preservation/economic aid which has been being paid out to Croatian companies and which is due to expire on Monday.

As Poslovni Dnevnik writes, the Croatian Prime Minister reported that the European Council had discussed the need to speed up the delivery of coronavirus vaccines. He recalled the fact that Croatia had ordered 6.8 million doses of vaccine, more than is needed for all of its adult residents.

"It's currently estimated that about 8 percent of adult citizens have been vaccinated at the European Union level so far, and the goal is to reach 70 percent by the summer months. The EC will continue talks with leaders within the pharmaceutical industry. Croatia will therefore be in a position to vaccinate a larger amount of its population. We expect 730,000 doses of vaccine to arrive by the end of March,'' Plenkovic said.

The Croatian Prime Minister also commented on the announced easing of epidemiological measures and on the talks on the continuation of aid for enterprises.

"We've made a political decision to continue to monitor the economy, regardless of the possible scope of that work," said Plenkovic, announcing the continuation of support for the economic activities that cannot work as they did before the coronavirus pandemic struck would continue to receive their financial support from the state. He stated that they consider it the right decision and that the necessary funds will be found in the positions of the ministries, and that no rebalance will be needed.

"I'd also like to address the issue of bookmakers and casinos. All of them pay concessions, in case they don't work, there is no such income and the state still pays them. When we analysed this we saw that their business isn't epidemiologically problematic, such is the attitude of our epidemiologists. The meaning behind that decision is so that the state can benefit. None of us are personally prone to gambling,'' he said.

He also commented on the record decline in Croatia's GDP.

"Croatia, like other tourist countries, found itself in a situation where the coronavirus crisis hit it extremely hard. This 8.4 percent drop is better than the other estimates which were given for Croatia. Thanks to government measures, today, when the sums are underlined, we see that there are only 2.1 percent fewer employees in 2020 than there were back in 2019, while salaries have increased by 2.7 percent. That's very important,'' the Croatian Prime Minister pointed out, once again stating that Croatian employers have been paid 9.3 billion kuna so far to overcome the crisis.

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ZAGREB, 25 February, 2021 - Expectations for the Croatian economy increased in February to the highest level since March 2020 reflecting the wave of optimism in the services and retail sectors, as business leaders signalled a lower demand for workers, a European Commission report showed on Thursday.

In February, the Economic Sentiment Indicator (ESI) was 94.1 points, or 3.9 points higher than in January, which was its highest level since March 2020 and the outbreak of the coronavirus pandemic. Its value, however, is below the long term average of 100 points.

The greatest improvement was observed in services confidence, increasing by 6.5 points. Retail and industry confidence improved significantly, by 4.8 and 3.3 points respectively, reaching their highest level since March 2020. A mild improvement was registered in construction confidence and in consumer confidence, up 1.7 and 1.6 points month on month.

Business leaders, however, signalled a decline in the need for workers in the coming period, with this index falling to 90.3 points or by 3.4 points m-o-m, which is its lowest level since June last year.

Slight improvement in EU and euro area

Economic sentiment in the EU and the euro area in February registered a mild growth of 1.9 points to 93.1 and 93.4 points respectively, the EC said in its report.

The highest increase in the EU and euro area was in industry confidence, of 2.4 points in the EU and 2.8 points in the euro area.

Services confidence improved by 1.1 points in the EU and by 0.6 points in the euro area.

The slightest improvement was observed in consumer confidence - 0.8 points in the EU and 0.7 points in the euro area while construction confidence remained unchanged compared to January.

Retail confidence deteriorated, with the index falling by 0.5 points in the EU and by 0.6 points in the euro area.

Business leaders expect that they might step up hiring in the coming period so the Employment Expectations Indicator (EEI) increased by 1.7 points in the EU and by 1.8 points in the euro area, the EC report showed.

February the 25th, 2021 - The Croatian Employers Association (HUP) want more European Union cash to be directed towards the private sector, with employers doing their best to urge the government to amend a certain document to ensure this happens.

As Novac/Gordana Grgas writes, at least 50 percent of European Union money is set to be available to Croatia in the next period, which is a total of about 24 billion euros. The Croatian Employers Association believes that around half of that massive amount should be made available to the private sector through calls for grants.

Employers are also urging the Croatian Government to properly amend the draft National Recovery and Resilience Plan (NPOO), the first version of which it has already sent to the European Commission (EC), and to further strengthen the role of the private sector in it.

Although the draft itself hasn't yet been published, and has only recently been roughly presented to the Croatian Employers Association, it appears that most of the 6 billion euros in grants from the NPOO, to be funded by the European Recovery and Resilience Mechanism as a result of the ongoing coronavirus crisis, could end up in reform-related public sector projects. As announced by the Croatian Employers Association at a recently held press conference, they plan to urgently send their remarks and suggestions to the European Commission itself. The final draft, they say, should be ready and sent to Brussels in April.

So far, a quarter of the money available to Croatia from EU funds has gone to the private sector, warned the Croatian Employers Association's Damir Zoric. The rest ended up going to public investments and public infrastructure, and Croatia needs larger investments in production for the development of the economy. Boris Drilo, President of the aforementioned associations's ICT Association explained that previous investments in the private sector have been shown to have a significant impact on economic growth.

"It's a minute until midnight for all of us, after which we can turn into either a princess or a pumpkin," he said in a rather picturesque manner. He also stressed that investments in private sector projects lead to sustainable employment for high-value jobs.

In February, the Croatian Employers Association conducted a survey among 1,700 enterprise owners, which showed that more than two thirds of them have prepared projects or investment plans for the next financial period in the amount of more than 21 billion kuna. As many as 94 percent of them would exclusively utilise EU grants, so there is extremely little interest in these so-called financial instruments, such as loans, and 30 percent say they will not be able to invest if these grants aren't enough.

On top of that, 28 percent of enterprise owners say they will not survive the ongoing pandemic crisis without better co-financing. Most of them stated that they would invest in capacity expansion and modernisation if they could be more certain, and the projects they have in those areas are the ones which are the most ready to be realised.

Drilo explained that, in general, the investment potential of available European Union money is significantly higher if it is directed to private investments, and it is also less burdensome for the state budget. Namely, a private company from the EU receives 40 to 70 percent of the investment amount as support, and the rest is financed by itself. The public sector, on the other hand, receives 85 percent of the money from the EU for the project, and the rest is added from public sources, which is less favourable.

Answering a question related to the National Recovery and Resilience Plan, the Croatian Employers Association said that the state should be prevented from competing with the private sector with its projects.

Ana Fresl, president of the Croatian Employers Association's Association of Professionals for EU Funds confirmed that the draft plan presented to them, in which only state bodies participated, exceeded the available six billion euros, and there has not been any feedback on which parts of the plan will remain and which will be discarded. In their belief, what was presented to them under the name "economy", the first version of the plan envisages a series of projects that have nothing to do with entrepreneurship whatsoever.

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February the 16th, 2021 - Could we soon expect a rise in Croatian investment loans being taken out as spring quickly rolls around and the vaccination is rolled out? According to RBA analysts, the answer to that question is yes.

As Poslovni Dnevnik/Ana Blaskovic writes, placements to companies continued their upward trend at the end of last year; back in December, they grew by 2.5 percent on a monthly basis and by 5.3 percent on an annual basis, reaching 86.3 billion kuna.

Data from the Croatian National Bank (CNB) illustrates that this growth is mainly due to an increase in the kuna amount of foreign currency loans, whose share in corporate loans reached 63 percent, analysts at Raiffeisen Bank noted. As the Croatian national currency weakened against the euro, the amount of foreign currency loans converted into domestic currency increased. A look at the structure reveals visibly continued growth in the share of placements with the longest maturities.

At the end of last year, 63.2 percent of all loans had maturities of longer than five years, followed by medium-term maturities of anywhere between one to five years (slightly more than a fifth of such loans). Only 15.7 percent of placements accounted for periods of less than one year.

Looking back at the second wave of the spread of the novel coronavirus last autumn, which was readily accompanied by yet more new restrictions on both movement and doing business, the RBA pointed out that greater uncertainty about the duration and the type of measures being introduced in an attempt to slow the spread of the disease down is actually altering the demand for corporate lending.

"Due to the delay in people making investments, entrepreneurs and business owners are reducing their overall demand for new loans and instead are increasing their liquidity reserves. The demand of companies for the conclusion of moratoriums, as well as for restructuring and extending the loan repayment period has since increased,'' the RBA stated.

While companies accumulated liquidity back at the beginning of the coronavirus crisis in early 2020, later working capital financing reflected the well-known reduced levels of economic activity, so at the end of 2020, companies' deposits exceeded their net indebtedness.

"At the beginning of 2021, we're expecting a gradual increase in optimism among entrepreneurs and business owners, driven by the start of the vaccination campaign and the prospects for the normalisation of tourist arrivals during the warmer summer season. In the first quarter of this year, people might very well still hesitate to make any investments, so we expect stronger growth in demand for Croatian investment loans in the second quarter,'' explained Raiffeisen's analysts.

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February the 15th, 2021 - The European Commission (EC) has issued numerous predictions for Croatian economic growth as the ongoing coronavirus pandemic rages on. From bad to worse to decent and back again, what do the predictions look like now?

As Poslovni Dnevnik/Marina Bilus writes, a few days ago, the European Commission released its winter forecasts, which are, of course, dominated by the impact of the coronavirus pandemic on the economies of the individual member states of the European Union and the Eurozone. As far as Croatian economic growth, or indeed the opposite is concerned, the European Commission has somewhat lowered its estimates of GDP decline throughout 2020 when compared to the autumn forecasts, and it now believes that it will amount to 8.9 percent.

At the same time, the EC is calling for 5.3 percent growth this year, which puts Croatia and the Croatian economic growth forecasts, at least the latest ones, in the group of countries with the most optimistic estimates attached to them.

As expected, Prime Minister Andrej Plenkovic relished in that same optimism yesterday, while, for example, the Croatian Employers' Association (HUP) warned that they themselves prefer to stick to the realism in which the Croatian economy currently finds itself, which is far from favourable and hasn't been for a year or so now. "As such, our forecasts are less optimistic than those given by the EC," said HUP briefly.

However, it should be said that the European Commission itself acknowledges that the risks do continue remain high in this fluid and often unpredictable situation as the race to roll out coronavirus vaccines continues, although it still seem that their views are somewhat more balanced than they were back during the autumn months of a rather tragic 2020. Of course, the main threat remains the pandemic, the outcome of which will determine the intensity of the economic recovery of not only Croatia, but the entire bloc.

“After strong growth in the third quarter of 2020, economic activity declined again in the fourth quarter because the second wave of the pandemic led to the reintroduction of measures to combat the spread of the infection. As those measures still remain in place, the economies of the European Union and the Eurozone are expected to shrink in the first quarter of 2021, but will also start to grow again in the spring and, thanks to increasing population fragmentation and the gradual easing of anti-epidemic measures, gain some more momentum in the summer months.

The economic consequences of the pandemic are still uneven among the countries of the bloc, and it is predicted that the speed of recovery will vary significantly from member state to member state,'' reads the winter forecasts.

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