ZAGREB, 19 May, 2021 - Annual inflation in the European Union in April reached its highest level in nearly two and a half years, and Croatia also followed this trend, according to a report released on Wednesday by the EU statistical office, Eurostat. 

EU annual inflation was 2.0% in April, up from 1.7% in March, and this was its highest level since November 2018. In April 2020, the annual inflation rate was 0.7%.

The euro area annual inflation rate rose by 0.3 percentage points from March to 1.6% in April, its highest level since April 2019. In April 2020, the annual rate was 0.3%.

The highest annual inflation rates were recorded in Hungary (5.2%), Poland (5.1%) and Luxembourg (3.3%), while the lowest rates were registered in Greece (-1.1%), Portugal (-0.1%) and Malta (0.1%). 

In Croatia, annual inflation in April increased by 2.1%, its highest level since August 2018. In March, the annual rate was 1.6%.

The annual inflation rate of 2.1% was also recorded in Germany and Belgium.

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May the 18th, 2021 - The Croatian economic situation has been picking up throughout the duration of 2021's first quarter, as demonstrated by a rapid assessment of GDP done by the central bank.

As Poslovni Dnevnik/Ana Blaskovic writes, the Croatian economic situation accelerated in the first quarter of the year between the two coronavirus pandemic waves, as illustrated by the model of a rapid assessment the country's GDP by the central bank in some new information on economic trends.

Industrial production, from 0.8 percent in the last quarter of last year, accelerated to 4.5 percent thanks to the production of non-durable consumer goods. This is indicative that an upward trend was also observed across other major industrial groups, with the exception of the production of durable consumer goods, which stagnated.

The beginning of this year also brought momentum in the Croatian retail sector (6.6 percent compared to 5.9 percent at the end of the year). The data for February suggests the continuation of growth in construction activities of 3.9 percent on a quarterly basis with an increased volume of work.

With the third wave of the ongoing coronavirus pandemic then striking, the feeling of relief and cautious optimism sank in part, but not equally among everyone, which only further highlights the fact that this crisis continues to affect individual industries and sectors very differently.

Back in April, business expectations in industry improved when compared to the previous, unstable month of March, they stagnated in construction, and they unfortunately deteriorated sharply in trade and services.

One major indicator of the health of the Croatian economic situation is the (admittedly traditionally very seasonal) employment rate. There has been, at least as yet, no major change in the country's employment rate. In the first three months of 2021, the number of Croatian employees was 0.9 percent higher, and only a tenth of those employees were being covered by government measures initially introduced last year to try to preserve jobs. The domestic unemployment rate then rose to 8.5 percent in March 2021.

Monthly inflation rose 1.1 percent in the same month due to seasonal growth in clothing and footwear prices, higher excise duties were placed on tobacco products and oil became more expensive out on the global market. The Croatian National Bank stated that foreign trade also slowed down rather significantly.

After a jump in exports (of 6.2 percent) and imports (of 6.6 percent) in the last quarter of pandemic-dominated 2020, the pace of exports in January fell to 3.2 percent, while imports (mainly of petroleum products) increased by 1.8 percent. Although exports surpassed imports, due to a significantly larger import base, the foreign trade deficit increased by 6.2 percent.

For more on the Croatian economy, follow our dedicated business section.

ZAGREB, 15 May 2021 - The European Commission has received Croatia's National Recovery and Resilience Plan and Prime Minister Andrej Plenković on Saturday thanked government members and all who worked on the key document for structural reforms and investments.

He tweeted that by implementing the reforms, Croatia will ensure more than HRK 47 billion in grants that will contribute to economic growth.

Croatia's plan is based on a green and digital economy; public administration and judiciary; education, science and research; the labour market and welfare; healthcare; and post-earthquake reconstruction.

The plan covers 77 reforms and 152 investments which, Plenković said earlier, will also make Croatia more resilient to future crises.

For more, follow our business section.

May the 14th, 2021 - Croatian economic recovery is certain, and with the vaccination rollout across the country and indeed the rest of the world, particularly in Croatia's emitting markets picking up, the situation with the domestic economy is slowly but surely regaining strength. Despite that, the Croatian National Bank (CNB/HNB) has warned of threats.

As Poslovni Dnevnik/Ana Blaskovic writes, Croatian economic recovery has actually been happening at a far more rapid pace than most could have ever predicted just a few months ago, but the financial system remains exposed to significant risks due to strong public debt growth, inflation in terms of property and the risk of what are known as zombie businesses - all of which are the undeserving victims of the pandemic.

The CNB Council warned that fiscal policy, among other measures, contributed to mitigating the effects of the ongoing coronavirus pandemic, and the decline in revenues and generous support for the Croatian economy spilled over into a jump in public debt (with increased interdependence between banks and the state itself). For the time being, the risks of government financing are mitigated by low risk premiums and favourable financing conditions, as well as generous European Union (EU) funds which have been made readily available.

The problem that has been snowballing for some time now is the warming up of the situation in the real estate market. Although they don't explicitly mention inflation, the CNB points out that "high and rapidly rising residential property prices are increasingly being separated from the economic values ​​that should determine them". The number of transactions during the pandemic decreased somewhat, but prices only slightly slowed growth on the wave of cheap money, government subsidies and stable levels of employment and income.

Housing loans have been growing rapidly, and although they're granted with prudent lending conditions, "part of the loan shows increased repayment ratios to income, which in unfavourable circumstances may exacerbate the effects of disturbances in the real estate market."

Finally, with the longer duration of the coronavirus pandemic and fiscal stimulus associated with it, the threat of corporate sector zombification grows. Parts of the economy continue to suffer from anti-epidemic measures, and while premature repeal of some measures can jeopardise healthy enterprises, those companies with unsustainable business models can also actuallt benefit from maintaining them for too long

. "This may reduce corporate dynamism and zombify the corporate sector, with unfavourable implications for Croatian economic recovery, growth and financial stability," the CNB warned.

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May the 9th, 2021 - Croatian producers have managed to deliver an excellent result in 2021's first quarter, recording record export figures and surprising growth of 9.5 percent.

The ongoing coronavirus pandemic is continuing to throw proverbial spanners in the works for almost everything imaginable, and the global economy is suffering tremendously and in a truly unprecedented way. The Croatian economy, which relies heavily on tourism as it makes up a huge amount of the country's GDP, has been far from immune from the negative trends caused by the measures introduced to try to prevent the spread of the novel virus.

Croatian producers, particularly exporters, have been as plagued by the virus and intermittent lockdowns as the vast majority of other sectors across Croatia and Europe, but 2021 has managed to bring with it some surprising and encouraging results which might well mean that things are finally on the up again.

As Poslovni Dnevnik writes, in the first two months of 2021, Croatian exports were down 1.4 percent (when looking at it from the perspective of the Croatian kuna) and 2.8 percent in euros on an annual basis.

2021's first quarter also saw a significantly more favourable ratio between the value of exports and imports, as the coverage of imports by exports improved significantly and amounted to 64.6 percent. In the first quarter of last year, the ratio stood at a lesser 60.3 percent.

The more favourable ratio is a direct result of slower growth in imports, which was 2.1 percent higher in Croatian kuna and 0.6 percent higher in euros. Since this is the first data without details on the structure to have been made available, there is no precise data on what contributed most to this promising export jump, and it can only be established that growth also took place on most important single market (7.3 percent in euros), and to a somewhat stronger scale outside of the single market (9.2 percent in euros).

In absolute numbers, in the first three months of 2021, the Croatian economy exported products worth 30.0 billion kuna, or 3.97 billion kuna. 46.48 billion kuna or 6.15 billion euros worth of goods were imported, which is a record result for that particular period.

For more on Croatian producers, exporters and figures, make sure to follow our dedicated business section.

May the 8th, 2021 - Croatia is very well known for its various fees and infamous red tape, but with the recent aim of relieving Croatian business owners of these burdensome restraints, more and more fee abolitions are being reported. Another fee abolition is set to relieve Croatian business owners of as much as 600,000 kuna in total.

As Poslovni Dnevnik/Marija Brnic writes, the Croatian Government submitted a proposal to abolish the obligation to pay administrative fees for intellectual property rights back in an urgent parliamentary procedure and within the context of the country's entry into the European exchange rate mechanism. The move was also made to come into line with the requirements of the Action Plan for the Reduction of Parafiscal Fees from back in May 2020.

According to the estimate presented to the Croatian Government by the Minister of Science and Education, Radovan Fuchs, this would result in a relief for Croatian business owners worth 600,000 kuna annually. While the fees for individual Croatian business owners of course vary, it was concluded that the fee represents an administrative burden to all, regardless of their respective company fees, and that its abolition will achieve a significant simplification of business conditions across Croatia which is something that has been and continues to be very desperately needed.

In addition to the abolition of administrative fees for intellectual property, Croatian business owners also have to pay compensation for costs in the field of intellectual property protection, which, despite this very welcome move, they will have to continue to pay. The explanation of the move also states that the proposed law doesn't substantially change the valid legal regulation regarding fees in the field of intellectual property rights, but is merely a formal and technical change of those regulations.

Therefore, while being a step in the right direction, this measure doesn't have a significant effect on the Croatian state budget either, and the visible effect in the government is that by abolishing this fee, it will achieve the increased interest of micro and small Croatian business owners to use the system of protection of industrial property rights when conducting business.

For more, follow our dedicated business section.

April the 29th, 2021 - Croatian wages are often the topic of conversation, and while things have definitely improved on the pay packet front over recent years, who has experienced the highest increases over the last five years, and who has experienced the least?

As Poslovni Dnevnik writes, the average net Croatian wage of employees who hold a university degree exceeded 9,000 kuna back in pre-pandemic 2019 and increased by 11 percent over the last five years, while the salaries of unskilled workers grew by 20 percent, Vecernji list reports.

Among employees in legal entities, companies and public institutions, Croatia has about 265 thousand highly educated workers who make up the second largest group of employees by education.

The most numerous are workers with a high school level education, of which there are about 595 thousand. Their average monthly wage stood at 5,460 kuna and reached 60 percent of the average salary of university graduates. According to that, schooling truly does pay off, meaning that university-educated person in Croatia earns about 109 thousand kuna per year on average, and those with a high school diploma earn much less - about 65 thousand kuna.

Three groups of employees earn more than the national average, those with a university degree, those with higher education qualifications and other highly qualified workers. A high school diploma brings about two thousand kuna less in terms of Croatian wages than a university degree does. This is equal to 7154 kuna. In Croatia there are about 98 thousand employees who have a high school diploma only. In third place are a small number of highly skilled workers - about 10,500 of them - who earned an average of 6,562 kuna before the coronavirus pandemic struck.

It has always been claimed that Croatia is chronically short of skilled workers, but this couldn't actually be concluded from looking more deeply into the movement of Croatian wages because in five years, the average wages of these groups of employees rose by only ten percent and grew the slowest in groups who do have a higher/university education.

In the last five years, the Croatian wages of about 56 thousand unskilled workers were the ones to have actually grown the fastest - by a surprising 20 percent - exceeding four thousand kuna, reports Vecernji list.

For more on Croatian wages, paying taxes, working in Croatia and much more, make sure to follow our lifestyle section.

April the 7th, 2021 - As the pandemic continues to throw proverbial spanners in the works of all things imaginable, the economy is counting the kuna and the Croatian Finance Minister, Zdravko Maric, is busy cooking the books.

As Poslovni Dnevnik/Jadranka Dozan writes, the latest increase in indications for coronavirus infection is passing, at least for now, without any new significant tightening up of any epidemiological measures, but how do things stand when it comes to state aid, taxes, pensions and contributions?

There are also very big question marks hanging over the head of the upcoming 2021 tourist season, as well as the overall economic trends this year. Things are a bit different than they seemed just a few months ago, ie, back at the time of making macroeconomic projections on which the Croatian Government based its budget plans.

After the end of the first quarter, Croatian taxes and contributions to the state budget flowed in at only slightly less amount than they did last year, with the impact of the pandemic on the budget hitting only mildly in the first quarter.

This weekend, Croatian Finance Minister Zdravko Maric revealed to Vecernji list that revenues from Croatian taxes and contributions in the first three months of this year were 2.6 percent lower than they were last year, with those from pension contributions falling less than tax thanks to job preservation grants from the state.

According to the Croatian Finance Minister and his Ministry, in the first quarter, around 17.5 billion kuna in Croatian taxes were collected, or approximately half a billion kuna (540 million kuna) less than last year, while pension contributions amounted to less than 5.9 billion kuna or about 90 million kuna less.

The most generous tax revenue, that of VAT, in the first quarter of the year turned out to be 3.2 percent less generous than it was last year.

This means that a little more than 11.7 billion kuna or 390 million kuna less was collected than back during the first three months of 2020, but it should be borne in mind that the real impact of the coronavirus crisis manifested itself only during the months of April and May.

Overall, year-on-year comparisons of current budget revenues don't give all that much away about where the budget is now when compared to this year's projections, although with the current epidemiological situation, plans to return the fiscal deficit to three percent of GDP in 2021 look quite optimistic indeed.

The impact of the “prolonged” coronavirus crisis is also possible on the expenditure side (higher costs in the healthcare system, higher than planned subsidies to the economy), as well as on the realisation of all planned revenue recovery.

For this year, for example, VAT revenues are planned in the amount of 53.7 billion kuna, which is a significant increase when compared to last year. In the last 11 months, this tax brought in 43.2 billion kuna to the budget, which was better than the dynamics envisaged in the rebalance (the plan for the whole of 2020 was 43.8 billion kuna), but this year's plan still implies double-digit percentage growth in terms of income from that tax.

Total tax revenues are planned for this year at 79.5 billion kuna, which compared to last year's realisation (and a month before the end of the year it was 67 billion) would also mean an increase of 5-6 billion kuna.

The budget plan envisages collecting 24.6 billion kuna from pension contributions, which means almost 2 billion kuna more than last year, but also around 700 million kuna more than in the pre-pandemic normality of a now very distant seeming 2019.

On the other hand, for example, when it comes to pension payments, which amounted to 42.2 billion kuna last year, this year, due to indexation and an increase in the number of beneficiaries, an increase in these expenditures by 870 million kuna is now expected.

Things are very far from the ‘old normal’ as we once knew it...

Regarding the risks of achieving macroeconomic and fiscal projections, ie pressures on public finances, the Croatian Finance Minister emphasised, among other things, that in relation to the time of making these projections and plans, we had yet another terrible earthquake in Croatia.

He noted that the budget has been put in the function of healthcare and the preservation of jobs, but that this doesn't exclude any responsible conduct of fiscal policy. Although this is often contextualised today with plans related to Croatia's Eurozone entry, the competent minister will say that this is even more important for ensuring healthy and sustainable growth.

When it comes to the state of public finances, of course, it will be very important to see what extent the ongoing coronavirus pandemic can be controlled, there is special emphasis in this regard placed on the issue of the pace of vaccination, as this alone will enable a "relatively solid" tourist season.

In addition, it remains to be noted that the relaxation of epidemiological measures from the beginning of March has left its mark on the fiscalised turnover of enterprises and other companies whose operations are more exposed to the epidemiological framework and have faced work bans.

The blossoming Croatian IT sector is doing better than it did during pre-crisis 2019

The recorded turnover of cafes and restaurants in March amounted to almost 528 million kuna, while in March last year, marked by the first mass lockdown of the economy, those in the catering and hospitality industry issued invoices/receipts worth 485 million kuna.

How far their activity now is from the "old normal" is somewhat indicated by the data on more than 900 million kuna of reported turnover in the same month last year. The same is true for the data on fiscalisation in so-called cash transactions in the provision of accommodation or, for example, transport.

Companies operating in the transport sector issued invoices in the amount of 138 million kuna, which is significantly more than the 117 million kuna recorded from last March, but still a quarter less than in the comparable period of the pre-crisis 2019.

Hyper and supermarkets make up the most significant financial indicators of all, as their turnover for the month of March 2021 exceeded four billion kuna, which is half a billion kuna more than last year, and as much as 900 million kuna more than back in March 2019.

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April the 2nd, 2021 - Croatian Labour Minister Josip Aladrovic has spoken out publicly about the continued government efforts to help companies keep their heads above water as the coronavirus pandemic rages on. This state aid includes economic help and so-called job preservation measures. Aladrovic stated that they can't simply go on forever.

As Poslovni Dnevnik writes, Labour Minister Josip Aladrovic was a recent guest on Dnevnik N1, where he spoke about the National Recovery and Resilience Plan and what it means for the country as the pandemic continues.

To begin with, he said the plan envisions 54 percent of the funds going to the domestic economy.

"This is the segment in which we expect the most job creation and the highest quality jobs, and that means that most investments will go to the real sector. 100,000 seems ambitious, but it's also realistic. I must mention that in the last four years, we've created a little less than 110,000 jobs,'' he said and added:

"At the end of the term, we only had 110,000 more jobs than we did at the beginning of the term, so these numbers we want to compare stand at 100,000 more than today, and I'm sure we'llsucceed and we want to reach 70% employment."

New workplaces

"It's up to the state to create the preconditions for jobs to be created. We have several chapters here that show where these investments will be directed. The economy will use these funds to create new jobs. We hope that it will be in industries that are more advanced, that are more technologically aware and of course that these will be jobs that will create more added value. In other areas as well, we've allocated more than a billion kuna precisely in the aspect of the green and digital sectors, where we expect not only to generate 100,000 new jobs but we expect them to better quality jobs,'' noted Labour Minister Josip Aladrovic.

He also explained that they have another month to better set goals, after which the approval of the European Commission (EC) is to be awaited, and after which the implementation of the plan will actually concretely begin.

Reform salaries by the end of the term

Labour Minister Josip Aladrovic also referred to the reform of salaries in the state and public sector.

"The salary reform in the state and public administration is something we've been talking about for a long time now. Last year, which was entirely marked by the pandemic, wasn't the one in which we tackled that reform, but we applied for funding so we could implement that reform and listed it as a priority and a goal.

We'll certainly implement the salary reform in both the state and public administration in two to three years. We've committed ourselves to implement this within these deadlines. It is important to state that a significant aspect of the National Recovery and Resilience Plan are these goals. It's important that these reforms are implemented in parallel with investments. I'm sure that this mix of reforms and investments will be positive for us," he said.

Government measures and state aid cannot be infinite

Aladrovic also said that higher expenditures from salaries for healthcare weren't a topic of conversation. "What the healthcare system is facing is an increase in costs in the middle of a pandemic, but also a multi-year accumulation of liabilities. I must mention that, as far as I know, the increase in contributions wasn't a topic,'' he said.

He also said that government aid measures cannot last indefinitely.

"That isn't going to simply be infinite and we're all aware that can't be the case, given that part of the funds are financed from the state budget. Now we have a challenging epidemiological situation, I want to emphasise that while there are problems in the economy, and when certain segments can't operate at their pre-pandemic levels, we're going to be here to help, but it simply isn't possible for this sort of help to last indefinitely," he warned.

"Our first projections were that we would need help for January or February, now we're already in April, I'm sure that in the second part of April we'll see what the epidemiological and economic situation is and determine possible help for May accordingly. As long as there is a need, we'll do everything to help out workers and employers as much as possible,'' Labour Minister Josip Aladrovic concluded.

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March the 20th, 2021 - Just how has the ongoing coronavirus pandemic affected Croatian consumer habits, the typical household budget and the way we spend money in general? With economic woes rife and restrictions to certain economic entities still in force, the bag is a mixed one.

As Poslovni Dnevnik/Ana Blaskovic/Jadranka Dozan writes, over recent months, we have often heard how working from home has largely replaced the purchase of fashionable clothing and footwear with tracksuits, slippers and trainers, and how less money has generally been spent on these items since the coronavirus pandemic struck.

Many will also say that their car's fuel tank is lasting longer, but also that their costs of (tele)communications have increased, as well as the figures on bills for some other "overhead" items. The scale of changes in living and consumer habits today has left a mark on what typical Croatian household consumption looks like.

Among what was looked at in regard to Croatian consumer habits includes data on inflation and the consumer price index (CPI). A few days ago, the Central Bureau of Statistics (CBS) published data for the month of February, according to which, for the first time in the past year, the index of these prices in year-on-year comparisons had a positive note to it. After a 0.3 percent drop back in January, the annual inflation so measured in February also stood at 0.3 percent, but was encouragingly rising.

The CBS consumer price index is calculated on the basis of a representative basket of about 890 products. Each month, about 38,000 prices are collected from within a given sample of outlets.

In order to preserve representativeness, the coverage of goods and services is revised once a year, and given the circumstances of the ongoing pandemic, the CBS has included some new products in its basket for the year 2021. According to the Institute, these are protective face masks, disposable gloves and hand sanitizer.

Back in December 2020, Eurostat issued recommendations to EU member states on the calculation of what are known as ''weights'' in order to include the effects of these coronavirus-induced changes in personal consumption expenditure.

As such, in its calculation of the consumer price index, the decline in ''weights'' compared to 2020 was recorded in the following categories: Restaurants and hotels, Transport, Recreation and culture, Clothing and footwear, Education, according to the CBS, which delved into Croatian consumer habits during the pandemic.

At the same time, compared to last year, food and non-alcoholic beverages have a higher "weight" attached to them; Housing, water, electricity, gas and other fuels; Health; Communication, miscellaneous goods and services; Alcoholic beverages and tobacco; Furniture, home furnishings and regular household maintenance.

A comparison of the data from this and last (2020) February shows, for example, that the ''consumption weight'' for food and non-alcoholic beverages increased from 26 to 27.2 percent, while the share of clothing and footwear decreased from 6.4 to 5.7 percent. The costs of housing and related "utilities" (electricity, water, gas, etc. utilities) and maintenance costs in February last year were 16.3 percent higher in terms of weight, and today their weight is 17.7 percent.

Expenses related to personal transport or personal vehicles (purchase, parts, repairs, fuel) in the structure today make up 13.3 percent, while a year ago they "weighed" more than 15 percent. The ''weight'' of transport services (road, rail, sea) was reduced from 1.5 percent down to one percent. But equally, the weight of expenditures related to communications, primarily telephone and Internet, is expected to continually increase.

The well known British BBC has also been working on adjusting the consumer basket to calculate the cost of living these days. The statistical office over in the United Kingdom has refreshed its list of more than 700 products, not only with those items such as disposable masks, hand sanitizers, slippers or tracksuits, but also with, for example, home workout equipment, smart watches, electric cars, and items which reflect the result of attempted healthier eating trends on that Northern European island.

When looking specifically at Croatian consumer habits however, there was less intervention in the coverage of that same proverbial basket, but the ''weight adjustments'' haven't gone without affecting the value of the IPC.

Back in February this year, consumer prices rose equally (by 0.3 percent) on both annual and monthly levels. Annual inflation across the EU averaged 1.3 percent, still well below the ECB's target of "close but below 2 percent", and Croatia is among the 14 member states with accelerating inflation.

The category in the ''basket'' when it comes to Croatian consumer habits that pushed up monthly inflation last month was transportation, up 1.7 percent on average. Transportation, which has seen a 13.3 percent drop in the consumer basket, has been affected by higher oil prices, which have been on an upward trajectory on global stock exchanges over the past four months or so. More expensive transport costs back in February was mitigated by 0.1 percent (on average) cheaper food and non-alcoholic beverages. Although the decline is more modest than in transport, a higher ''weight'' was crucial in the inflation calculation, as food participates in the basket with as much as 27.2 percent.

Annual inflation, on the other hand, was primarily affected by higher alcohol and tobacco prices. They were 4.5 percent higher in February than they were back during the same month last year (with a so-called weight of 5.2 percent). Growth was also recorded in the category of recreation and culture (1.3 percent) and communications (1.2 percent). In the last year, the prices of food and non-alcoholic beverages were lower by 0.8 percent, while the costs of housing and utilities (water, electricity, gas and other such items), which make up 17.7 percent of household costs, were 0.9 percent cheaper.

With the spectacularly embarrassing failure of plans for rapid vaccination across the European Union, the pandemic looks set to continue. However, the forecasts for this year are still in the realm of optimism.

"With the expected recovery of the economy this year, we expect the return of moderate price growth," say analysts from Raiffeisen Bank (RBA). In this light, energy should be influenced by a slight recovery in crude oil prices.

“We expect the average price of Brent crude oil to rise above 70 US dollars per barrel in the second and third quarters of this year, and global crude oil inventories will return to pre-pandemic levels by the end of this year. On the other hand, rising food prices will slow down, partly due to the global environment and the normalisation of supply chains. Therefore, we expect that the average inflation rate this year will be around one percent,'' they noted from RBA.

For more on Croatian consumer habits, follow our lifestyle section.