As tportal/Maruska Vizek writes on the 26th of March, 2020, following the transition from socialism to a market economy, the Homeland War and the great financial crash of 2008, the coronavirus epidemic is the fourth structural breakdown that has hit the Croatian economy, according to a major analysis by the Zagreb Institute of Economics director Maruska Vizek.

As such, she proposes sixteen anti-crisis measures that should be taken in addition to those already presented by the Government to save the Croatian economy.

Economists have a special name for events like the coronavirus epidemic; we call them structural fractures. A structural breakdown is an unexpected change in an economy that fundamentally changes the behaviour of citizens, businesses and the entire state, which makes economic models and forecasts unreliable. The relatively young country of Croatia had the unfortunate fate of experiencing four massive structural breakdowns in its relatively short history: the transition from socialism to a market economy, the Homeland War, the Great Financial Crisis of 2008, and now the coronavirus pandemic.

In moving to a market economy, Croatia gave up central planning and adopted the practice that the market should be the one to offer insurance for different types of events. So, you can buy insurance in case your pet becomes unwell, in case of a natural disaster, and in case of bankruptcy of the country. However, the market cannot offer insurance against collective global risks such as the effects of climate change or a global pandemic. For such naturally colossal structural breakdowns, the only insurer that can offer insurance is the state itself. And the state, with the help of people well-known for their skills in central planning, needs to offer this insurance as quickly, efficiently and abundantly as possible to prevent a complete economic setback that can also result in wider social collapse.

The pandemic as a litmus paper for the effectiveness of the Croatian Government

The crisis caused by the coronavirus pandemic can also be seen as an indicative test of how not only the Croatian Government, but how all countries and their governments function. Every government faces the same questions about the pandemic and the high risk of economic crisis that accompanies a pandemic, and their answers tell us a lot about how they govern the countries they lead. In this sense, the response of the Croatian Government to the deep recession that could well be ahead is very indicative: there are seemingly many measures to create the impression of substance, most of which with a little political will mixed in, and they should've been introduced even without the appearance of coronavirus.

In all of that, there are only a few substantive measures that are pre-bureaucratically defined, all accompanied by chaotic communication that brought additional nervousness and uncertainty to the already neglected future beneficiaries of these measures, which have fundamentally changed their lives and businesses in just a few weeks. Of course, it should be borne in mind that not all governments have the same arsenal of measures at their disposal and not all governments face the same set of constraints when defining these measures (we'll touch a little more on that later), but it cannot be denied that our measures have the classic Croatian a signature of prescription and a big lack of courage.

What can be done at all to protect national economies, intensely globalised and economically interdependent, from the effects of a pandemic that happens (hopefully) once every 100 years? How do you help in a situation where, in order to reduce the health consequences of a pandemic, countries are literally forced to break their national economies? The state can do a lot and the market does practically nothing. However, it's first necessary to diagnose the problem and list the limitations that countries face in finding a solution, and only then can adequate solutions be offered.

Three economic shocks because of the epidemic

So, let's start with the diagnosis. The peculiarity of the economic crisis caused by the coronavirus epidemic is that the structural fracture that has hit us can be broken down into three components. Due to the closure of the borders and the introduction of quarantine, companies are unable to continue with their normal operations, resulting in a decrease in the production of goods and services. It's a supply-side shock. Consumers, however, cannot buy the products and services they normally buy because they either can't, as producers cannot deliver them, or because of quarantine they cannot physically reach them. We'll call it demand-side shock. The collective psychosis that arises from the preoccupation with news of a pandemic and its aftermath creates a third kind of shock, a shock of confidence. For fear of an uncertain future, people lose confidence in the economy and stop buying anything but essential products, and businesses, for the same reason, even if they have liquidity, stop producing and investing.

All three shocks cause a significant decline in economic activity as measured by gross domestic product (GDP), while their impact on prices is ambivalent. Supply shock produces inflation and demand and expectation shocks have a deflationary effect, so, it's ultimately more certain as a result of this pandemic (especially if it is short-lived) to expect a decrease in the general price level, that is, deflation. The aforementioned shocks are mutually supportive and like a ball that increases in size as it descends down the snowy slope it spreads very quickly across the whole economy, which is why the ultimate impact of the pandemic on GDP could be really huge.

Furthermore, due to the fact that the pandemic has spread in the G7 countries and of course in China, to which 60 percent of world's GDP and 65 percent of world's production are related, it's clear that only a few countries will avoid undesirable economic consequences, even if the epidemic itself doesn't actually touch them at all.

How much of a decline in GDP awaits us?

At the moment, it isn't very wise make any estimates of the expected fall in Croatian GDP in the second and third quarters of this year, but this estimate is still necessary because the estimated magnitude of the economic damage caused by the epidemic also necessitates the speed and magnitude of the country's response. The specificity of the structure of the Croatian economy thus makes the negative economic effects of the pandemic potentially significantly more dangerous. Namely, Croatia doesn't have a diversified economy based on productive activities, but instead is focused on tourism, and with abundant tax policy assistance to tourism, which, with transport, hospitality and personal services, is the most affected economic sector. As tourism alone generates 11.4 percent of GDP directly, and we can declare this year's tourist season a failure, the annual decline in GDP coming from this activity alone will be very painful.

It's worth keeping in mind that an epidemic that directly affects the tourism industry is likely (at least in the first strike) to do the most damage to small tourism-focused economies such as Croatia, Malta and Cyprus, than to the economies that are much more affected at the moment, even those who also see a lot of tourism like Italy and Spain, but in which tourism generates only a few percent of GDP.

Although data is currently not available to estimate the expected GDP decline, it can be expected that Croatia will enter into a recession securely and officially in the third quarter, although it is possible for it to enter a recession in the second quarter.

Due to its reliance on tourism and Croatia's recovery from the crisis, it's likely to be different from economies that rely on industry. In contrast to the manufacturing sector, where production was lost due to a lack of raw materials or quarantine, which can be partially or fully compensated when an epidemic passes, services don't have this capability. This means that manufacturing-based economies can expect a V or U recession (hence a decline in activity and either an immediate or very rapid full recovery), while service-based economies can expect an L recession (a decline in activity and a prolonged period of stagnation).

Extraordinary times call for extraordinary measures

An upcoming recession is therefore a certain result of the coronavirus epidemic. GDP decline is likely to be higher than that recorded in 2008 and 2009, while there is no guarantee of a speedy recovery, even if the pandemic is over quickly. The longer this epidemic lasts, the greater the possibility of economic depression. Depression is an economic situation in which GDP decline is long-lasting, accompanied by high unemployment rates and the declining prices of products and services.

Therefore, the Croatian Government's response to this situation must be decisive, prompt, well coordinated, innovative and financially very generous. These are extraordinary times that require extraordinary measures. Measures that will at least partially restore the confidence of both citizens and business owners in the Croatian economy and will entrench the Croatian state in its current place - the place of insurers of its citizens and businesses against collective global risks.

The preservation of company viability and jobs

What are the priority objectives of these anti-crisis measures? Firstly, to provide sufficient liquidity to businesses and citizens affected by the coronavirus crisis to overcome this temporary economic disruption (while hoping for the epidemic that caused this disruption to be a short-lived one). Without providing additional liquidity to citizens and businesses affected by this crisis, Croatia will face a new wave of unpaid claims, pre-bankruptcy settlements, bankruptcies and unfortunate foreclosures.

The peculiarity of the coronavirus recession is that in the long run, we know that in a few months, when the pandemic is over, the economy will indeed return to normal, but for these few months, in combination with the earthquake that struck Zagreb on Sunday, they look like the end of the world to many businesses. Standard recessions are usually the opposite; we don't see the end of them, but we know that for a few months we can surely push through without giving up our usual lifestyle. And that's why it's important for the state to enable businesses and citizens to bridge this very deep (but hopefully short-lived) economic crisis that lies ahead of us. If the Croatian Government fails to do that, or if they delay the implementation of the necessary measures, a recession is more likely to turn into an economic depression.

Another objective of anti-crisis measures is to preserve jobs. As with the first objective, it is the state that must make a short-term bypass in the labour market so that unemployment doesn't rise massively overnight and lead to a secondary shock in demand.

Maintaining the country's foreign exchange liquidity

The third objective of the necessary anti-crisis measures is to ensure sufficient foreign currency liquidity for the government to continue to repay its outstanding debts. Why is this important? Otherwise, we might have trouble finding the foreign exchange needed to pay for imports and servicing by the end of the year. In other words, if we don't do this - the state could go bankrupt. These currencies are secured from tourism revenue in normal, non-crisis times, but as we can forget this year's season, the 10 billion euros in foreign currency inflows will have to be offset somehow. The fact that we have 18 billion euros in foreign exchange reserves at our disposal is somewhat reassuring, but it will be necessary to provide some more foreign exchange to prevent any speculative attacks on the exchange rate.

It should be noted that there are also goals that aren't complementary to the three goals I've mentioned above. The first such objective is the introduction of the euro (whereby it remains to be seen whether the euro, after all that is currently happening in Italy, Spain and France, has any viable future whatsoever), and the second such aim is to win the next parliamentary elections (whenever they're held). This is definitely a miserable time to be a politician, because this extreme crisis will very accurately detect all the dysfunctionalities of both the state apparatus and the political system, as well as separate the true leaders from those who didn't step up in terms of public service when it was necessary to do so.

Three dances down the wire

The fundamental limitation that the Croatian Government faces in adopting measures to meet the three objectives outlined above is - where can we find the resources to take the necessary measures? Namely, we don't have our own obvious stocks (I'll talk more about less obvious stocks a little later), and at the same time, with each delay day, the likelihood that we can borrow funds on international capital markets decreases.

Furthermore, ideally, the entire state budget expenditure needed for assistance should be monetised. The government would therefore have to issue domestic bonds in order to borrow money for the necessary measures, and these bonds would then be bought directly or indirectly by the Croatian National Bank. However, this ideal case scenario is appropriate and fully enforceable only in large and more developed countries because they don't face capital flight during times of crisis, instead, investors with surplus savings want to ''park'' their capital in those countries.

Small and underdeveloped economies such as Croatia, with the lack of their own resources to combat the crisis, are already facing the outflow of foreign capital, which can significantly weaken the exchange rate and thus further destabilise the economy. This ultimately means that the Croatian economy and other economies like it, in the fight against the crisis will have to, figuratively speaking, dance a monetary dance along a very thin wire - on the one hand, the state must pump money into the system with extravagant measures, and on the other hand, it must ensure that these same measures don't cause the exchange rate to collapse.

The second dance on wire, which is needed because of the constraints we face, is a fiscal dance. It consists of balancing the need for a very large stimulus package from the state budget.

The third dance down the wire is the austerity dance, which consists of balancing the need to soak up some of the funds for anti-crisis measures through budgetary savings, without exaggerating in order not to deepen the already described demand shock and to prevent the country from really ending up in a truly deep economic depression.

Let's now look at the anti-crisis measures proposals that should be taken in addition to those currently proposed

1. The establishment of a crisis headquarters to defend against the coronavirus recession

Judging by the list of measures currently proposed, the government has seriously underestimated the magnitude of the problem it is facing. When you read the proposed measures, you get the impression that they were made so that a circular was sent to all ministries to suggest what each of them could do. As a result, we've been given a lengthy list that will require a large number of changes to laws and regulations, without the measures themselves being financially generous enough to address the problem we're facing whatsoever.

In a situation where it is necessary to respond quickly, precisely, efficiently, very concretely and convincingly, such a bottom-up approach makes no sense at all. The measures should be designed and coordinated by a centralised expert body with adequate expertise and with all relevant information on the table. This isn't a moment for some sort of spontaneous trial and error method, but for a responsible and competent central planner capable of perceiving both the global situation and national specificities. This situation is very serious, there is very little time to react and the time we do have must be used in an optimal way.

2. The withdrawal of income tax advance payment

In a situation where we can be overjoyed if Croatia's GDP declines in the second and third quarters, this is ambiguous. Only a few companies will make a profit this year. Paying an advance on corporate income tax is therefore meaningless and only exacerbates the already deeply impaired liquidity of companies. The cancellation of this down payment doesn't apply to public companies.

3. VAT deferral from March onwards for all affected businesses

Quarantine has been in force in Croatia for a week now, which means that many sectors affected by the crisis are no longer generating any revenue at all, while they are expected to pay taxes such as VAT on invoices issued in February, which are paid in March, and most of the affected companies pay it from the revenue generated in March. If these revenues are absent or substantially reduced due to the quarantine imposed by the state, the question arises as to how the entrepreneurs will pay this tax at all. In other words, those entrepreneurs who were forced to sink their business completely due to quarantine in March should be allowed to postpone their VAT due in March and for all subsequent months. If that doesn't happen, the state will actually turn the liquidity problem - which it's claiming it wants to solve - into a wider economic one, thus causing the illiquidity spiral Croatia has already seen back in the 1990s.

4. The ''forgiveness'' of the payment of income tax and surtax for all taxpayers in the private sector for the duration of Croatia's quarantine

Delaying tax payments doesn't make sense in a situation where the coronavirus epidemic will permanently reduce revenues for all businesses (except for the few who produce goods and services for which demand during the crisis has increased). In order to avoid the deep shock of severely diminished demand and create a spiral of illiquidity, one should first select a tax form for which this ''forgiveness'' will apply. If employment in the private sector is to be maintained, it may be the most prudent decision to exempt income tax and the corresponding surtax for the duration of quarantine. Additional tax exemptions are possible if the measures to improve the liquidity of the state bear fruit, but at present, and with limited information available to the expert public, that can't really be discussed.

5. Prepare a new issue of government bonds on the international and domestic markets

International bond issuance can take place within just one month, and it's necessary to provide additional foreign exchange liquidity for the country and reduce the mounting pressure on the exchange rate. This should start immediately; the more difficult it becomes, the less likely it is that such bonds will be issuable, especially since credit rating agencies will certainly return Croatia's credit rating back doen to a non-investment grade (or, colloquially, a junk rating). At the same time as the issuance of foreign bonds, the issue of bonds on the domestic market should be prepared immediately and without delay, which can then be purchased from banks, investment funds and insurers, the most visible buyers of such securities, by the Croatian National Bank.

6. Use the Croatian Presidency of the Council of the European Union to abolish export restrictions on certain goods and services and to agree financial assistance measures for particularly affected member states

Getting the European Union out of the crisis will require coordinated action at European level and the solidarity of the less affected member states towards those who, like Croatia, will be more affected by the crisis. Croatia has the opportunity to impose this narrative during its Presidency of the Council of the European Union and propose a platform and some measures for coordinated economic action. The European Union should, in theory, be similar to marriage and its core values ​​should absolutely refer to ''in sickness and in health''. If the Union abandons the principle of solidarity in this situation, in only makes the question of what purpose such a union serves at all even louder.

7. Examine the possibility of opening a credit facility with the European Central Bank

Such a credit line would have been available to us if Croatia had entered the European Exchange Rate Mechanism, but only in the case of serious disturbances in the exchange rate. However, as the crisis hit us shortly before joining the mechanism, and as our banking system is predominantly owned by banks in the Eurozone, we need to try to arrange a line of credit that would allow us to access these badly needed foreign currencies.

8. The reinforcement of the Croatian National Bank's government bond repurchase programme

The primary source of financing for the stimulus package to help the Croatian economy and citizens will have to come through the purchase of government bonds and treasury bills by the central bank. Given that the stimulus package must be financially more generous than the one currently proposed, the buyout will need to be multiplied by an enormous four billion kuna. No private lender can swallow the amount of debt needed to stabilise economies in this state and help them avoid collapse. Only central banks' balance sheets, and then the CNB's balance sheet, can swallow that amount of cash.

9. Look for a stand-by arrangement with the IMF

There's no shame, nor should there be a sense of failure in seeking an arrangement with the IMF at a time like this if you're a small and underdeveloped economy like Croatia, which is already facing or will be facing a shortage of foreign exchange to finance its obligations. Eighty countries have already been in this order since the epidemic began, and we need to line up, too. If for no other reason, then as a precautionary measure should measures 5, 6 and 7 fail. IMF resources are also limited, which once again means that there is no time to waste and that we must immediately seek a stand-by arrangement.

10. The reduction of salaries in public and utility companies and payment of advance payments to the state budget

This would be the first of the austerity and diversion measures from the public sector to the private sector. Public companies have an average of one third higher salaries for the same jobs compared to government and public services. It is one of the less obvious ''stocks'' of funding needed to fund anti-crisis measures. Collective agreements in public companies should be cancelled (for which all the conditions are now due to these extraordinary circumstances), salaries should be reduced and all excess liquidity transferred to the state budget through corporate income tax advance (and, if necessary, other creative measures).

11. The reduction of salaries in local self-government units

This segment of the public sector also has significantly higher salaries than state and public services do. Wages will need to be reduced to a lesser extent than those in public companies in order to stabilise the budgets of local government units, which will bear the burden of income tax ''forgiveness''. The proposal applies to other public authorities, such as tourist boards whose salaries also differ from the rest of the public sector.

12. The reduction of salaries in the civil and public service

Collective agreements for state and public services should be cancelled. Salaries should be linearly reduced in all services except for those in the health system and the police. For all three proposed pay cuts, the constraints should all be taken into account, because pre-term savings in the form of public sector pay cuts in these conditions are counterproductive, especially if they're of a more lasting nature. Temporary significant cuts, especially if well motivated and adequately presented to public sector employees, could be much more effective. It isn't possible to say in advance how much the proposed pay cuts would need to be in the three categories of the public sector, as this requires a little more detailed analysis and verification of the feasibility of the remaining proposed measures intended to improve domestic and international liquidity, but it will definitely be needed.

13. The use of funds from the second pension pillar to keep the economy alive

I have to admit that I never thought I'd ever advocate buying CNB government bonds or encroaching on another pillar. But according to the legendary statement of the great English economist John Meynard Keynes, when the facts change, I change my mind. In other words, if things get really nasty and if the epidemic persists, retirement savings will have to be put on the table as an option to fund economic rescue measures. In other words, pension funds are also another less obvious stock for anti-crisis funds. Pension funds are holding government bonds in their portfolio(s) anyway, and it's certain that their share in the portfolio will need to increase in order to reduce the need for borrowing from abroad. It is disturbing that we have to sacrifice the future in order to save the present, but if we were to rationalise budget spending, such solutions wouldn't be necessary today. Many economists have been warning us about this for decades, and no one has taken it seriously.

14. Ensure that the excess liquidity pumped by the CNB into the system reaches the private sector, ie - that it doesn't end up in the public sector

The Croatian National Bank is following the steps it has taken to date. Delaying the possibility of a moratorium and rescheduling past due liabilities to maintain the stability of the banking system, while reducing the reserve requirement and expanding the bond repurchase programme in order to stabilise the bond market and increase the liquidity of the banking system. The real challenge is yet to come because it will have to ''dance'' a monetary dance along that proverbial wire; therefore multiplying the bond repurchases while defending the exchange rate at the same time. At the moment, however, it's crucial to conclude that this increased new liquidity doesn't just remain with the banks because they will be prone to uncertainty regarding the situation in which we find ourselves ''storing'' that liquidity in our giro accounts.

In other words, it makes no sense to flood the banking system with new money if that money just ends up staying with the banks. This money is needed by and for the Croatian economy, whether it is transferred through the banking system or through state support measures. It is even more crucial to conclude that this new excess liquidity of the banking system doesn't serve for the direct financing of the public sector, which banks will also be inclined to, because at this moment in time, placing loans in the public sector is a much safer option than lending them to the private one.

Thus, excess liquidity should be channeled through the redemption of new government bonds into the state budget solely to offset the tax revenue lost by introducing tax relief and deferrals and financing minimum wages for crisis-hit companies and businesses. Part of the money should also be diverted to the reprogramming of existing loans and the granting of new, very cheap loans to businesses. Given the ''reduced risk appetite'' of commercial banks, it would be advisable to devise a joint lending programme for commercial banks and for HBOR.

15. If the epidemic doesn't last for more than a few months, introduce a tourist voucher programme

The sectors most affected by the crisis will need a highly specific support programme. The tourism sector deserves special attention because it generates eleven percent of Croatia's GDP, and this year it has no chance of generating any revenue in a normal way. So, if we're lucky and the epidemic ends quickly, vouchers can save that sector from collapse.

16. Review the necessity of the existence of individual state bodies and institutions

This coronavirus crisis can also be an opportunity for reform. In view of the fact that excessive cutting of public expenditure in such a situation is counterproductive, the possibility of restructuring and abolishing certain public authorities which are not expedient for the purpose of achieving further savings should definitely be examined. A wide variety of options are available, and only actual political will for such a move is needed.

In the end, it should be borne in mind that these are only umbrella macroeconomic measures that need to be accompanied by additional sectoral policies. In such volatile times, the situation may change overnight (for the worse or for the better), and that will require the constant adjustment of the measures already adopted and the introduction of more new ones. It is quite certain that, as a consequence of these measures, both the deficit and public debt will explode, which is acceptable to the European Commission at the moment, and with them, the balance sheet of the central bank will explode. But at this point there's no other choice.

Furthermore, one should be aware that measures 2, 3, 4, 14 and 15 may also save a lot of those who have long been in bankruptcy, among others. Now is not the time, however, for these insights to be a pretext for hesitation. More substantial measures than those currently proposed must be enacted as soon as possible. Speed is now necessary.

The whole world is currently swimming through economically unfamiliar waters and no one knows the right way to the shoreline. However, staying out in the middle of a storm like this and not doing things properly cannot be an acceptable solution. The comparative advantage of Croatia is that in the last three and a half decades, it has successfully survived the socialist shortages, the collapse of the former Yugoslavia and its economic system, the Homeland War and the devastation that came with it, the care of a large number of displaced persons, international sanctions, as well as the financial crash. We will survive this, too.

For more on coronavirus in Croatia, follow our dedicated section.

March 19, 2020 - A look at the first ten measures proposed to help the Croatian economy during the corona crisis. 

Following the decision to prevent the rise in prices of critical products for supplying the Croatian market and exporting those products for which a shortage in Croatia could appear, Minister Darko Horvat presented the first ten measures from the Ministry of Economy, Entrepreneurship, and Crafts, which were proposed at a Government session on Tuesday, reports Vecernji List on March 16, 2020. 

These measures will be aimed primarily at entrepreneurs and craftspeople. 

“The meaning of all the measures we plan to take and which we have held very intensive discussions about so far is to preserve jobs and the domestic economy, and to provide the necessary liquidity to our entrepreneurs, through a moratorium or deferrals of loan obligations, the introduction of new credit lines for working capital funds and the like,” explained the minister. Horvat also stressed that changes in certain economic relations are expected in the coming period, both nationally and globally.

“At the moment, we are aware that carriers, traders and exporters suffer the most, but we must take into account all possible scenarios, considering all branches of the Croatian economy, from craftspeople, through micro, small and medium-sized enterprises, to large companies,” said Horvat. 

You can find the suggested measures below:

1. Reprogram existing loans (with the introduction of a grace period in repayment of the loan principal) and introduce a moratorium on the credit obligations of HBOR clients and commercial banks on existing placements;

2. Approval of new liquidity loans to economic operators for financing salaries, overheads, and other basic operating expenses, in cooperation with commercial banks;

3. Approval of guarantees (insurance policy) to export commercial banks and HBOR within the framework of the guarantee fund for export insurance;

4. Increase the scope of the guarantee fund for export insurance by including the tourism sector, the indirect exporting entities or the suppliers of direct exporters in the eligible beneficiaries;

5. Provide for the possibility of introducing, through the Amendments to the Investment Promotion Act, the extension of deadlines for the implementation of investment projects and the introduction of an additional grace period of three years to preserve jobs;

6. Intervention in the purchase of surpluses in livestock and crop production, fruit and vegetables, and other products from potentially endangered industrial and agricultural producers;

7. Increasing the rate of the HAMAG-BICRO guarantee from 65% to 80% of the loan principal with a shortened processing procedure and an additional allocation of EUR 15 million for Micro working capital loans (up to EUR 25,000), with a maximum interest rate of 1%;

8. Moratorium on all installments of ESIF Micro and Small Loans by 31/12/2020;

9. Increasing the de minimis grant limit from EUR 200,000 to EUR 500,000;

10.The possibility to mobilize part of the budget as a contribution to sectoral intervention grants to entrepreneurs (national grant).

To read more about business in Croatia, follow TCN's dedicated page.

The Croatian demographic crisis is continuing to bite just as hard as it has ever done, with more and more Croatian youth abandoning the country and taking advantage of Croatia's EU membership for a better life and more economic stability in Western Europe, many feel the government has simple forgotten about them.

As Poslovni Dnevnik/Marta Duic writes on the 12th of March, 2020, in the Croatian capital of Zagreb at an EU conference, fifty experts discussed both opportunities and challenges.

On Wednesday, Zagreb hosted a two-day meeting where the topic of not only Croatian youth, but youth from across the bloc was discussed. The meeting of the leaders of the Youth Authorities' Administrations in Zagreb is the third in a series of such meetings of the presiding countries of Romania, Finland and Croatia, and a symbolic handover of the presidency to the German delegation was organised at the end of the meeting.

Within the main theme of the meeting, officials discussed the challenges facing today's generations of young people, including disillusioned Croatian youth, and the need to ensure equal life opportunities for all young people. Although the topic of youth in rural and remote areas is one of the priorities of Croatia's EU Council Presidency, the discussion also included other current issues.

Otherwise, the three-day conference entitled ''Youth Opportunities in Rural Areas - How to Ensure Rural Sustainability in EU Countries'' organised by the Ministry of Demography, Family, Youth and Social Policy brought together youth representatives from EU member states, delegates of the European Commission and the Council of the European Union, national and international youth organisations and researchers and scientists, as well as youth decision makers.

In her opening speech, Vesna Bedekovic, Minister for Demography, Family, Youth and Social Policy, stressed that Croatian youth and others across the EU living in rural and remote areas needed to be recognised as a priority of Croatia's EU Council Presidency because of the growing inequality between young people living in the countryside and those living in cities.

She added that the desire is to encourage young people to participate in democratic life, to increase their involvement in society and to ensure that as many young people as possible contribute to the formulation of youth policies. The conclusions of the conference will serve to shape the documents regarding future youth policies.

For more on Croatian youth and the current demographic crisis, follow our dedicated politics page.

As Novac writes on the 26th of February, 2020, banning shops operating on Sundays would have a negative effect on the growth and competitiveness of the Croatian economy. A far more constructive solution is an amendment to the Labour Law, which would prescribe a minimum increase in wages for those doing work on Sundays, holidays or any other day which would otherwise not be a working day.

Of course, this should be done within the framework of a thoroughly conducted social dialogue with trade unions and employers in the trade sector and other related sectors,'' said Kristijan Kotarski, a professor of political economy at the Faculty of Political Science at the presentation of the Lipa Association's ''competitiveness barometer".

According to his calculations, using the methodology of the World Economic Forum, if the ban were introduced, Croatia would fall from 63rd to 64th in the 2019 global competitiveness ladder, in which case the Philippines would climb one step ahead of the Croatian economy, which is concerning to say the least.

The ban on work on Sundays could, in practice, help boost foreign economies by "diverting spending to online platforms (mostly foreign ones)" and "spillovers of traffic to neighbouring countries" in border areas, Kotarski warned.

He also recalled that in Croatia, despite the opposite opinion, there is a much smaller percentage of employees working on Sundays compared to other European Union countries, and that comparable countries like Poland and Hungary have already repealed similar laws, or are under pressure to abolish them because they're deemed a bad influence to their respective economies.

Although we have not yet been able to see a detailed proposal for a new version of the Trade Act, it is certain, he argues, that its application in the announced model of 8 to 12 working Sundays a year will create confusion in the eyes of both domestic and foreign consumers. It would also see an increase in the monitoring of the competent authorities. In addition, one might expect a problem with the distribution of printed matter, which could adversely affect the publishing business.

Additionally, in border areas along the border with Bosnia and Herzegovina, Slovenia and Hungary, part of the traffic to neighbouring countries can be expected to spill over, resulting in a hit to the Croatian economy and the possible effect of redirecting consumption to online platforms (mostly foreign ones) thus helping to boost overseas economies as opposed to the Croatian economy.

Calling for a ban on work on Sundays ignores comparisons with the situation in other EU member states and does not sufficiently take into account the experience of comparable countries like Hungary and Poland.

Make sure to follow our dedicated business page for more on the Croatian economy.

If you were to ask the majority of people what they think of the Croatian economic outlook, the response would typically bleak. Is everything really so black, though? It would appear that certain experts, such as Boris Vujčić of the Croatian National Bank have some improved opinions on the Croatian economic outlook for 2020, and GDP growth seems to have replaced a potential slowdown.

As Novac/Marina Klepo writes on the 10th of December, 2019, although it has long been announced that the Croatian economy will experience a slowdown in the coming year, Governor Boris Vujčić is now seeing "something more optimistic'' than the way things looked a couple of months ago.

According to CNB projections for next year, the Croatian economic outlook isn't quite what we were all initially expecting, and it seems that the country's GDP will grow by almost 3 percent, much as it did this year.

The risks to growth are, first and foremost, global and political risks, and as he said when presenting the edition of The Economist's ''The World in 2020'' (Svijet 2020), these risks include trade relations between the US, China and the EU and of course, the tired, old and quite frankly embarrassing story - the largely unpredictable yet undoubtedly extremely negative consequences of Brexit.

He believes that Croatia is currently more prepared for a potential recession than it was back in 2008, because it has succeeded in changing the structure of its economic growth. Before the crisis, he explained, growth was mainly based on imports and the accumulation of debt, and to date, that structure has changed, most notably when Croatia joined the EU, making the export part of the economy much more important, with both external and public debt falling significantly.

Prime Minister Andrej Plenković is no less optimistic about the Croatian economic outlook. The PM said that Croatia would be able to adapt to international circumstances, and that "with a government policy based on fiscal consolidation, structural reforms and attracting investment, it came to a level of resilience". He also added that Croatia enjoyed faster growth from the EU average.

''I believe that we're now even more capable and efficient in absorbing European Union funds, which will be important for investment and economic growth, so I expect a stable situation,'' said Plenković, noting that the situation in Croatia is facilitated by the fact that this year, two out of three respected rating agencies returned Croatia's rating to that of an investment level, which lowered the level of the cost of borrowing, both for the state and for economic entities and residents.

Despite the fact that the structure of the Croatian economy is different today than it was back in 2008, one thing has certainly failed (and quite miserably so) to change, and that is to reduce import dependence.

The CBS trade data just released indicate that this is unlikely to happen soon, either. When it comes to food production, which is the most significant part of Croatian industry and accounts for one fifth of exports, products worth 6.6 billion kuna were exported during the first nine months of this year, which is 445 million or 7.2 percent more than in the same period last year. At the same time, imports of food products increased by as much as  1.3 billion kuna or 11.5 percent, reaching 13 billion kuna.

The CBS also released the first data for ten months of 2019, showing that in that period, total merchandise exports amounted to 94.1 billion kuna, 5 percent more than in the same period last year, while imports reached 155.4 billion kuna and increased by 5.3 percent. Thus, Croatia's foreign trade deficit increased by 3.3 billion kuna to 61.3 billion kuna, while the coverage of imports by exports decreased from 60.7 percent to 60.5 percent.

At the same time, the data for those same nine months shows an increase in exports at a rate of 6 percent, with imports increasing by 6.4 percent, suggesting that October brought with it a slowdown in trade. In terms of sectors, the strongest growth in exports in the aforementioned nine months was recorded by "other transport means", of 40.2 percent, which indicates a stabilisation of the previously dire situation in Croatian shipbuilding. However, that sector's imports have also increased sharply, by as much as 33.4 percent, so there may be some transit involved.

The export of tobacco products (37.9 percent), motor vehicles and trailers (29.1 percent), metals (17.6 percent), pharmaceuticals and rubber and plastics (12.9 percent) increased significantly. Exports of refined petroleum products fell the most, with a fall of 10.9 percent, while imports in this sector rose by as much as 35.9 percent. However, the largest increase was recorded in the import of tobacco products, by as much as 81.8 percent.

Those who sell goods in Germany, despite the announcement of a slowdown in demand, are still keeping up with the challenging pace: exports to the country increased by 5.9 percent in the first nine months of 2019. At the same time, exports to Italy, which still holds the number one position in terms of exports, grew by only 2.4 percent (imports increased by as much as 14.3 percent).

At slightly higher rates, exports to other EU countries are increasing: to Ireland, for example, exports more than doubled (to an impressive 106.5 percent), to Greece it increased by 83.3 percent, to Portugal by 28.9 percent, to Spain by 20.4 percent, and to Romania and Hungary by about 17 percent.

When it comes to Croatia's neighbouring countries, exports to Slovenia fell by 1.9 percent, while exports from that country increased by 9 percent. At the same time, exports to Bosnia and Herzegovina grew at a rate of 15.3 percent, to Serbia 11.2 percent, and imports from these countries declined slightly.

Make sure to follow our dedicated lifestyle and business pages for much more on the Croatian economic outlook.

Once upon a time, Croatia used to have a very strong industry and produced and exported some major components and tools. These days, we're rarely reminded of that bright past, but Adriadiesel company did just that.

Adriadiesel company is the biggest in southeastern Europe when it comes to producing diesel engines and the equipment for energy and technology factories. In early August the company reported on their website that an engine was delivered to them from the Smolensk Nuclear Power Plant. Smolensk is one of the biggest such plants in Russia. The diesel engine of the type 12ZV40/48 was originally made in the Karlovac-based factory (back when it was called Jugoturbina, and well-known around the world under that name) back in 1978, and has worked in Smolensk non-stop since then! It shouldn't surprise anyone that after those 42 years, the engine needed to undergo a complete overhaul, after which it's as good as brand new, hopefully, ready for the next 42 years.* As you can imagine, it's not just your everyday engine - it weighs 84 tonnes, so it needed a special kind of delivery arrangements. It was brought to Zagreb Airport in an Antonov 124-100, one of the biggest airplanes in the world. This airplane will take it back to Russia this Friday, Snježana Bičak writes for Večernji list.

While the Adriadiesel company has not reported on what needed to be done on the engine which has been in operation for 42 years (!), they did say it took them just 90 days to complete the complex job. Since 2004, they've done 13 such overhauls on the engines. Since they started making these engines based on the licence by the Swiss Sulzer company, they've made around 80 similar motors, which are mostly installed in the Eastern part of Europe. At this moment the company has contracts to build 6 new diesel engines, with a total value of around USD 60 million.

* - Although, probably not, as the plans are for the reactors of the Smolensk plant to be completely shut down until 2050.

I recently wrote an article on work permits in Croatia, and delved into what being inside and being outside of the annual quota means. Click here for that, and then read this article which discusses the changes to the Law on Foreigners to see how the changes may apply to you should you be attempting to get a work permit as a third country national in Croatia.

The information provided here should allow you to know what to do (should you need to do anything at all) in order to act accordingly depending on your personal situation.

As Poslovni Dnevnik writes on the 6th of November, 2019, the annual quotas for the import of foreign workers set by the Croatian Government will soon be condemned to the history books. In future, employers will employ foreign workers on the basis of a labour market test conducted by the Croatian Employment Service, and in some professions, the import of foreign workers will be fully liberalised, again at the discretion of the CES Governing Council.

The move stems from the draft of the new Law on Foreigners, which has been in public consultation since last week.

Under the new law, an employer from Croatia seeking to hire a foreign (non-EU) worker will have to contact the CES/HZZ regional office to verify whether or not there are any unemployed persons in their records who meet the employer’s requirements.

If there are any, the CES will mediate employment, otherwise, it will issue an opinion on the basis of which MUP (Ministry of the Interior) will issue work permits for foreigners. Once again, this refers to third country nationals, not EU citizens, who can work freely just like Croatian citizens, without the need for any type of permit.

However, these tests will not be carried out in the case of seasonal agricultural workers, and there will be no need for the test in certain other professions either, depending on the decisions of the Governing Council.

The draft law also specifies that these tests will also be overlooked for occupations that are lacking on the local and regional labour market and cannot be ''stoked'' by migration into the country, the implementation of strategic and investment projects, and "other circumstances relevant to economic growth and sustainable development".

The law also provided for exceptions, that is, there will be certain employers who will not be allowed to hire foreign/non EU workers. In such cases, third country nationals would not be allowed to be imported by employers who are subject to proceedings for the non-payment of salaries, those who have companies in liquidation or who have had their accounts blocked for more than thirty days, those who do not pay taxes, and those who have no actual contracted employees. It is also explicitly stipulated that the share of third country nationals among the total number of employees under one employer should not exceed one third, according to a report from Vecernji list.

Since time for the adaptation to this new model is required, above all by the CES, it has been circulating (albeit unofficially for now) that a temporary quota for the employment of non-EU workers will be granted during the first months of next year.

HUP has warned that with the full opening of the Austrian labour market, which has remained limited to Croatian workers owing to a right provided to member states of the EU, it will be even harder for employers to retain domestic workers, as well as foreign seasonal workers next year, which is why they consider the abolition of quotas entirely to be a very reasonable measure.

HUP's Davor Majetić emphasised that it is necessary to prepare a model of employment that will be more competitive than the countries in Croatia's immediate region, but also emphasised that such a model must be functional, which requires quality preparation of the system.

''We therefore support the government's acceptance of our initiative to introduce the Law on Foreigners through a regular procedure in order to implement the process of adjusting the system and stakeholders in a timely manner,'' Majetić said. He warned, however, that the checking of various employers to allow them to import foreign workers could bring with it even more, new administrative burdens, since the employer has so far only required proof of company registration.

Make sure to follow our dedicated politics page for much more.

The economy must be able to breathe with a full set of lungs, according to Croatian President Kolinda Grabar-Kitarović.

As Poslovni Dnevnik writes on the 2nd of October, 2019, Croatia's presidential candidates have lined up, and among some expected faces, some rather surprising names have cropped up. The country's current president, is also running for another term. President Kolinda Grabar-Kitarović officially announced her candidacy for a new presidential term in the Croatian capital of Zagreb on Wednesday, and on that occasion, she also spoke about the current state of the Croatian economy, N1 reports.

"Our children and young people are our top priority! Education must be [conducted] in the interest of our children and young people, who must grow into citizens who are able to stand side by side with young people from the most developed countries, who achieve the best results and find the best jobs. This is also in the service of our society, as well as the state, and in the service of the survival of our identity.

The economy must be able to breathe with a full set of lungs. The economic policies that I will promote will be aimed at unleashing the creative forces and potentials that we have and can activate for the faster development of our economy.

I will seek measures to strengthen our investment competitiveness and support for exporters. Salaries can and must rise! There is no reason why the average net salary in Croatia can't amount to 7,500 kuna soon.

The Croatian National Bank's monetary policy and the credit policy of the banks can and must favour the Croatian economy, the Croatian population and the central government more,'' insisted Grabar-Kitarović.

Make sure to follow our dedicated politics page for more information on not only Kolinda Grabar-Kitarović's candidacy, but for much more on the other candidates and the Croatian political scene in general.

As Novac/Kristina Turcin writes on the 21st of September, 2019, one in sixteen university graduates in the Republic of Croatia is unemployed, which is the third highest share of unemployed people with a college degree in the entire European Union.

According to Eurostat, the share of unemployed highly educated persons in Croatia stands at 5.7 percent, while the European Union average is 3.9 percent. In addition to that, Croatia is the country with one of the lowest proportions of people between the ages of 25 and 64 who have graduated from college: one third in the EU (32.3 percent) and barely a quarter (25.4 percent) in Croatia.

In other words, there are relatively few graduates in Croatia when the bigger picture is taken into consideration, but a relatively high proportion of them, nevertheless, cannot find a job regardless of their qualifications.

The explanation for such indicators lies in the generally high rate of unemployed young people (regardless of their respective educational structure) in the countries with the highest share of unemployed graduates, and it is precisely among young people that the highest share of the highly educated is found.

The top rankings of the countries with the highest youth unemployment rates are essentially the same as those of the countries with the highest youth unemployment rates: Greece, Spain, Italy, and Croatia.

In Greece, according to Eurostat, every eighth person with a university degree is unemployed. At the same time, nearly forty percent of all young people are unemployed in that country, which is two and a half times higher than the EU average. In Spain, the youth unemployment rate stands at 34 percent, and the rate of those unemployed with a degree stands at 8.4 percent.

The above two countries are then followed by Italy and Croatia, and differ from Greece and Spain in that they have a relatively lower proportion of people who have had a higher education: in Greece and Spain, this proportion is higher than the European average, while in Croatia and Italy it is seriously below it.

Make sure to follow our dedicated lifestyle page for much more.

''We aren't immune to what is happening in the countries around us,'' respected economic analyst Damir Novotny told HRT when discussing what might lie ahead for Croatia's already weak economy.

As Poslovni Dnevnik writes on the 12th of September, 2019, all indicators show that the Republic of Croatia is being threatened, not by a sudden recession and then a recovery, but by a long stagnation, believes Damir Novotny. In his view, the crisis will not be great and he doesn't believe there will be a sharp decline in economic activity, as there was back in 2009.

''There's increasing talk that a recession is knocking on Croatia's doors. We're not immune to what is happening in the countries around us. Are we still in the wake of what happened back in 2008 or are we really in a new crisis?'' economic analyst Damir Novotny spoke about this matter on the Studio 4 HRT emission.

''The economy moves in cycles, it's almost regular, although it cannot be predicted. From World War II up to the 2008 crisis, there were exactly fourteen cycles. Some lasted for less and some for more than 10 years.

The were crises that lasted from six to eight months, sometimes up to twelve months, but never longer than twelve months, only in Croatia and Greece did they last for as long as six years. Croatia and Greece are Europe's weakest economies, the most vulnerable to external shocks. Unfortunately, Croatian economic policy has still not learned the lessons of 2008. Our economy is still structured to be sensitive to external influences. In the meantime, we've integrated with the large markets of Germany and Italy, and that is now exactly what they are experiencing,'' said Novotny.

''Speaking of these two economies, those who have become involved in the supply chains of the industries in these countries - the automotive industry, the furniture industry - will feel the most. These could be SMEs that have been well and successfully involved in international supply chains.

Other parts of the Croatian economy are mostly influenced by another type of shocks - financial market shocks, such as the raising of the price of money, no longer being able to finance debt, and the highly indebted public sector, which creates about 55 percent of jobs in Croatia, is particularly at risk. All these external influences can quickly spill over to the extremely vulnerable structure of the Croatian national economy and then more or less affect individual sectors,'' Novotny explained.

''In 2008, the public sector was responsible for 40 percent of GDP, which was to reach 80 percent a few years later. Debt increased to maintain employment and the level of wages earned. Now we see that the past few years have been a recovery trend and immediately the public sector is emerging with new demands for wage increases, although productivity itself hasn't increased.

The private sector is still weak, under-capitalised and unable to withstand the rush of contract shrinkage. For example, if it happens that furniture contractors from Germany reduce their orders for two years, which is what happened in 2008, the woodworking sector will be the first to strike and will simply not be able to survive without work for two years,'' says Novotny.

''Stagnation in Croatia will be the result of stagnation in Germany, which is sure to happen, because these small growth rates cannot satisfy us. Croatia will remain at the bottom of the EU with low GDP per capita, and low employment. All of these indicators show that Croatia is threatened, not by a sudden recession and recovery, but by a long stagnation.

"Stagnation will be more difficult because it creates the impression of hopelessness," Novotny stated.

Make sure to follow our dedicated business page for much more on the state of Croatia's economy.