ZAGREB, 25 Feb 2022 - The Croatian economy increased strongly in Q4 2021, continuing to recover from the COVID crisis for the third quarter in a row, registering a record-high 10.4% increase in 2021.

The Croatian Bureau of Statistics today released the first estimate of GDP growth in Q4 2021 at 9.7% on the year.

Due to the COVID crisis, GDP fell 8% in 2020.

In Q2 2021, GDP saw a record-high growth of 16% and in Q3 it increased 15.8% year on year.

The strong Q4 growth was the result of year-on-year growth of all GDP components.

Household consumption went up 7.7%.

Exports soared 31.7%, the export of goods by 24.7% and that of services by 49.1%, while imports went up 16.4%, the import of goods by 15% and that of services by 23.8%.

Gross investment in fixed capital increased 0.8%, less than in Q3 2021, when the increase was 7.6%.

Government spending was up 14%.

According to seasonally adjusted data, GDP in Q4 2021 was up 9.9% year on year but down 0.1% quarter on quarter.

The year-on-year growth of Croatia's GDP in Q4 2021 was higher than the EU average which, according to Eurostat's seasonally adjusted data, was up 4.8% year on year and 0.4% quarter on quarter.

ZAGREB, 10 Feb 2022 - The European Commission on Thursday significantly revised up its forecast for Croatia's economic growth in 2021 to 10.5%, which is the second-highest growth rate in the European Union after Ireland, while downgrading its projections for this year and next compared to its autumn outlook.

The European Commission released its Winter Economic Forecast on Thursday, saying that the Croatian economy achieved a full V-shaped recovery in 2021, surpassing the level registered prior to the 2019 crisis.

After a fall of 8.1% in 2020, the Croatian economy is estimated to have grown by 10.5% in 2021. The only other EU member state with faster growth is Ireland, with a rate of 13.7%.

In its autumn forecast, released in November 2021, the Commission projected Croatia's growth for last year at 8.1%.

As far as inflation is concerned, it is forecast at 2.7% for 2021, 3.5% for 2022 and 1.6% for 2023. These figures are at the level of the euro area average and slightly lower than in the EU overall.

The Commission expects the Croatian economy to grow at a rate of 4.8% this year (compared to 5.6% forecast last autumn) and at 3% next year (the autumn forecast was 3.4%).

After strong growth in the second and third quarters of 2021, growth is expected to have slowed down in the fourth quarter based on short-term indicators of economic activities and price increases.

Exports of commodities and services contributed to the recovery, with tourism playing a key role as well as personal consumption.

Although a strong increase in demand for finished products led to a growth of imports, the contribution of net exports to growth will remain positive.

Investment is also expected to increase, reconstruction should be stepped up after the earthquakes in Zagreb and the Banovina region, as are favourable financial conditions and the implementation of the National Recovery and Resilience Plan (NPOO).

The revised budget indicates that government spending will make a positive contribution to this year's growth.

The risk balance is slightly tilted to the downside, mainly due to problems in implementing projects following the earthquakes. which could negatively affect investments.

This year, inflation could be 3.5% compared to 2.7% last year, mostly due to increased commodity prices. The high inflation rate in the first half of the year is expected to slow down in the rest of the year. Inflation will be most affected by prices of energy and unprocessed food. It is expected to fall below 2% in 2023.

The Commission estimates that after a growth of 5.3% last year, the EU economy will grow at a rate of 4% this year and 2.8% next year. Growth in the euro area is forecast at 4% in 2022 and 2.7% in 2023. The EU as a whole reached pre-pandemic levels in the third quarter of 2021 and all member states are expected to return to pre-pandemic levels before the end of 2022.

ZAGREB, 22 Jan 2022 - Commenting on the average pay in Croatia having increased from HRK 5,642 (€750) at the start of his government's term to HRK 7,333 (€975), PM Andrej Plenković said in a Twitter post on Saturday Croatia had weathered the COVID-19 crisis.

"With our GDP growing strongly, jobs having been kept and public debt being reduced at a fast rate, we have overcome the COVID-19 crisis," the PM said.

He added that now, with reforms and secured EU funds, Croatia was about to achieve even faster growth and a better life for its citizens.

According to the national statistical office, the average pay in Croatia in November 2021 was HRK 7,333 while at the start of the current government's term, in October 2016, it stood at HRK 5,642.

(€1 = HRK 7.52)

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ZAGREB, 30 Aug 2021 - Zvornimir Troskot, a member of parliament from the opposition Bridge party, said on Monday that the economic situation in the country was not good despite the government's boasting about it being excellent, and he also criticised insufficient production and the country's heavy reliance on tourism.

"It is good that GDP has grown by 16.1% in the last quarter considering our open tourism strategy but we have also been lucky because Spain has been on lockdown due to the pandemic and Greece due to wildfires," Troskot said at a news conference.

He noted that experts did not comment on the impact of inflation and price growth on GDP growth.

"If there are no more external shocks like the pandemic and lockdown, we will return to Croatia's economic reality, namely a 91% share of debt in GDP. That is why we should talk about real structural reforms in the economic sector because during the lockdown, too, the hospital system spent enormous amounts of money despite the fact that hospital care was less available than normally," he said, calling also for a reform of the judiciary.

Economy based on tourism, instead of on production

Troskot believes that public sector investments are yet another problem and recalls that the government has said that EU funds intended for recovery from the coronavirus crisis will eventually end up with private enterprises.

That money will possibly reach entrepreneurs through public procurement and we know how those allocations are made and that they do not reach entrepreneurs, he said, noting that his party had proposed transferring EU funds directly to entrepreneurs who had 68 prepared projects instead of financing public infrastructure projects that should not be a priority at the moment.

The MP also said that the national economy was not based on production, as evidenced by projects like the Pelješac Bridge, which, he said, was good, however, the EU funds approved for it had ended up in the accounts of Chinese, Greek and Austrian companies working on it.

We have based our economy on tourism instead of on production which creates jobs and which is the best instrument to fight inflation, he said.

"When we look at the whole picture, we get the impression that Croatia is becoming exclusively a tourist destination and is turning into a retirement home for the EU," he said, noting that 310,000 Croatians, born between 1984 and 1999, had emigrated to Germany.

He warned that in Slovakia wages in the past 15 years had grown by one thousand euros, while in Croatia they had increased by 327 euros, or a mere 20 euros annually.

Referendum on euro introduction

Asked if Bridge would support the campaign of the Croatian Sovereignists calling for a referendum on the introduction of the euro, Troskot said that his party was in favour of introducing the euro, but that Croatia was still not ready for it because it lacked own production and was not ready for the strong competition in the EU.

"Yes to the euro because we assumed that obligation under the Lisbon Treaty, but not for the time being because we are still not ready for it," he said.

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ZAGREB, 6 July, 2021 - Investment in private equity in Croatia stands at 0.3% of GDP, whereby it lags behind the most successful countries in that segment, the Croatian Bank for Reconstruction and Development (HBOR) CEO said on Tuesday, adding that the HBOR would participate in launching a €40 billion technology transfer fund.

Tamara Perko was speaking at the Bestinvest.hr conference organised by the Croatian Private Equity and Venture Capital Association, at which awards for the best private equity and venture capital investment were presented.

Perko said the HBOR contributed significantly to the development of private equity and venture capital in the past two years.

She said that together with the European Investment Fund (EIF) and private investors, the HBOR invested in  €46 million worth FIL Rouge Capital, the first venture capital fund investing only in Croatia.

Last year the HBOR, together with the EIF, established three more equity funds in Croatia, the Prosperus Growth Fund, the Adriatic Structured Equity Fund, and the Croatian Mezzanine Debt Fund, investing over €80 million.

Perko said that together with the EIF and the Slovenian development bank, the HBOR planned to invest in a fifth fund, the Transfer Technology Fund. In terms of patents, Croatia is within the EU average, but is near the bottom when it comes to their applicability in the economy, she added.

The purpose of the Transfer Technology Fund is to commercialise science and finance societies that will be established in science and research institutions and work together with the economic sector by providing the necessary products, services and processes, Perko said.

She said that Estonia invested 1.3% in private equity and was among the countries investing the most in that segment, adding that Croatia, with only 0.3%, "must run four times faster to catch up with the best."

Minister underlines importance of industries based on new technologies

Economy and Sustainable Development Minister Tomislav Ćorić underlined the importance of technology transfer and new technologies for the Croatian economy whose development, he said, must be based on those industries.

He said the venture and private equity scene in Croatia developed in a good direction over the past ten, 15 years. The fact that classic financing sources often are not enough additionally underlines the importance of the fund industry, he added.

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ZAGREB, 29 April, 2021 - The Croatian government on Thursday adopted the Draft National Recovery and Resilience Plan (NPOO) 2021-2027, worth HRK 49 billion, and it will send it to the European Commission for final harmonisation.

The document, which has more than 1,100 pages, contains descriptions of 77 reforms and 152 investments on which EU funds will be spent. It has five components and one initiative: the business sector, with investments amounting to HRK 26.2 billion or 54% of the total amount; public administration, justice and state assets (HRK 4.36 billion or 10%); education, science and research (HRK 7.5 billion or 15%); labour market and social protection (HRK 2.09 billion or 4%); health (HRK 2.56 billion or 5%); and the initiative "Reconstruction of buildings", with planned investments amounting to HRK 5.95 billion or 12% of the NPOO funding.

Sixty-six percent of the amount or HRK 32.15 billion is intended for recovery while 34% or HRK 16.5 billion is intended for resilience.

PM Andrej Plenković said the NPOO was a key document that "will enable us to use, in the next five years, more than HRK 47 billion for structural reforms and investments that will contribute to our economic recovery and make us more resilient to future crises."

If necessary, by the end of 2023 Croatia will also be able to seek loans in the amount of around €3.6 billion or HRK 27 billion, he said.

Economic recovery primarily refers to investments in those sectors that can guarantee fast economic growth in the short and long run, as well as job preservation and job creation, said Plenković.

Each component has 'digital' and 'green' elements, the goal being to reach the targets of 20% of investments being directed to digital transformation and 37% of investments being directed towards green transition.

Macroeconomic effects

According to projections, the NPOO's effects are expected to contribute to a real GDP growth in 2021 of 5.2% instead of 4.9% without the NPOO, while growth in 2022 would be 6.6% instead of 5.2% without the NPOO, and in 2023 it would be 4.1% instead of 2.7% without the NPOO. In 2024 the effects of the NPOO would result in a 3.4% economic growth instead of 2.5%, and in 2025 it would help achieve a 2.7% growth rate instead of 2.5%.

The government expects the implementation of the NPOO to cumulatively increase GDP by an additional 4.2% in 2025 in relation to 2020.

In the last year of its implementation, 2026, the NPOO will have resulted in GDP being close to HRK 17 billion higher than it would be without the NPOO.

Concrete examples of NPOO implementation

PM Plenković said that the implementation of the NPOO would make it possible to achieve the European target share of renewables in energy consumption (for Croatia the target is 36.6%) and achieving the European target of at least 14% of renewables in the transport sector until 2026. Investments in water management are planned as well to make drinking water available to around 93% of the population.

The plan also envisages better coverage with broadband infrastructure, access to fast internet for citizens and the business sector, and reduction of the number of outstanding cases at municipal courts by at least 5% by mid-2026.

The NPOO also envisages an increase in the share of children aged between 4 and school age who are covered by early preschool education, from 81% to 96%, which is the EU target.

Also envisaged are investments to create conditions to create as many jobs as possible for the sake of increasing the employment rate from 66.7% to 70% by the end of 2024.

"Labour market reforms and policies will help provide conditions to create at least 100,000 new jobs, with emphasis on people under 30 and the self-employed," said the PM.

Investment of HRK 2.5 billion in the health system is aimed, among other things, at raising the survival rate for cancer patients from 46 to 51% and saving around 5,000 lives. Also planned is the continuation of the functional integration of hospitals.

Post-earthquake reconstruction accounts for 12% of funds expected to be obtained under the NPOO, while the projected energy consumption for heating is expected to be reduced by at least 50% for buildings renovated as part of the NPOO.

Plenković said that in the next ten years and mostly in the first five, Croatia would have at its disposal close to €30 billion from EU funds. The amount is a unique opportunity to contribute to modernisation and growth of the business sector and Croatia's social and even development, he said.

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ZAGREB, 22 April, 2021 - As a consequence of the coronavirus pandemic and earthquakes real GDP in the first half of 2020 contracted by 7.8% year-on-year, due to a drop in personal consumption, investments and exports, while government spending rose mildly, Croatian National Bank Governor Boris Vujčić said on Thursday.

Vujčić said this in parliament while presenting the Croatian National Bank's (HNB) annual report on the financial situation and price and monetary policy stability in the first half of 2020.

He recalled that in the first half of 2020 a strong contraction of the global economy was recorded due to the spread of coronavirus and the introduction of restrictions. He added that the fall in real GDP in developed countries was the most pronounced during the peak of the spring pandemic wave.

Personal consumption contracted by 6.8% on the year, reflecting a decrease in available income due to negative trends on the labour market, a fall in the consumption of services whose provision of limited due to epidemiological restrictions as well as citizens' being less inclined to spend due to the need for physical distancing to avoid the risk of being infected and a decrease in consumer optimism. Those trends were also reflected in the lower indebtedness of the population, said Vujčić.

The annual inflation rate slowed down from 1.4% in December 2019 to -0.2% in June 2020 under the impact of the decreased prices of oil products, caused by the fall in global demand. The spread of the pandemic led to a decrease in inflationary pressure overall, notably in services related to tourism due to a significant drop in the number of passengers, and in durable consumer goods, due to a drop in investments. Basic inflation slowed down mildly from 1.2% in December 2019 to 1.1% in June 2020, which was mostly due to a drop in annual rates for individual food products and catering and accommodation services.

The contraction of economic activity due to the pandemic resulted in the import of goods falling at a significantly greater rate than exports, and the current and capital accounts in the first half of 2020 recorded a decrease in the deficit compared to the same period in 2019. On the other hand, the current and capital accounts were adversely affected by a significant drop in the net export of services, notably due to the situation in tourism.

HNB promptly adapted its monetary policies, using all the available measures with the aim of preserving the stability of the exchange rate and favourable conditions to finance citizens, the corporate sector and the state, said Vujčić. HNB sold a total of €2.7 billion to banks after which the kuna exchange rate was stabilised, he said.

Thanks to this and other measures kuna liquidity reached record levels and the state and private sector were able to continue taking loans with domestic banks under virtually the same terms as before the crisis, however, the weaker economic activity and demand for loans resulted in stricter terms to approve loans as a result of which consumer lending slowed down.

The budget deficit of HRK 13.2 billion in the first half of 2020 reflects the negative impact of the crisis caused by the pandemic on the economy and budget revenue. Temporary measures designed to relieve the consequences of the pandemic, such as the writing off of tax obligations and job-keeping support measures, also contributed to the fall in revenue. This is particularly obvious in the second quarter, when the deficit amounted to almost HRK 10 billion, HNB's report notes.

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

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

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

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

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

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

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

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

(€1 = HRK 7.5)

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ZAGREB, 26 February, 2021 - The annual drop in GDP of 8.4% is as expected, Maruška Vizek, a researcher from Zagreb's Institute of Economics, told Hina, adding that Q3 saved Croatia from a deeper downturn because of the key contribution of tourism and underscoring the contribution of government's strategy in H1 2020.

"The year-on-year decline in GDP of 8.4% compared to 2019 is in line with expectations, and Q3 saved us from a larger contraction, since it was much better than expected thanks to the strategy the government employed in the first half of last year," Vizek said.

She recalled that the country had had a relatively strict lockdown with good epidemiological results and then a sudden relaxation of measures just before the start of the main tourist season, which had, she said "definitely contributed to the good results of the tourist season".

She added that the quarterly GDP had grown in the last two quarters, that is, in the second half of the year, which meant that the economy was pulling out of the recession.

"Unless there is again a very strict lockdown this year, I think that we can really expect that the growth in 2021 will be significant, that it will be in line with estimates between 5% and 6%, which again means that we won't return to the starting point before the pandemic this year, but we are at least no longer in the red," she said.

ZAGREB, 26 February, 2021 - Opposition parties said on Friday that the record GDP fall of 8.4% in 2020 was due to the coronavirus crisis as well as the lack of appropriate measures to bail out entrepreneurs and the government's unwillingness to abolish parafiscal levies and put the system of public procurement in order.

Social Democratic Party (SDP) political secretary and MP Mirela Ahmetović said this was the biggest GDP fall since Croatia declared independence and that it was to have been expected.

"Now, it's important to see how the government will react to that fall, what it will do to revive the economy and if it will succeed in that. Yesterday we saw that Finance Minister Zdravko Marić was uncomfortable when asked whether bailout measures would continue, to which he responded that they 'did not recognise the situation'." I find it sad that the finance minister and prime minister do not recognise the situation even though we have been in this situation for a year," Ahmetović told reporters in Parliament House.

Asked whether she expected a faster economic recovery than that after the 2009 crisis, which is what the government has announced, Ahmetović said, "Do you believe in a government which, one day prior to the expiry of the moratorium on loan payments and debt enforcement, does not have any plan of what to do next? Do you believe in a government whose minister says that they cannot tell how the situation will develop?."

Bridge MP Nino Raspudić underscored that the government cannot be blamed for the coronavirus pandemic and everything that it has brought. However, he added, we can talk about the years that were lost prior to the pandemic and why Croatia has not developed sufficiently in relation to other countries in the European Union.

This is an opportunity to discuss what to do next and we have proposed that the mandatory membership fees in the chambers of commerce and trades (HGK and HOK) be abolished. The proposal is not about abolishing any institution because such institutions function quite well on a voluntary basis, from Slovenia to other countries, Raspudić said.

In a situation in which the economy is stifled and we see that the funds to be obtained will be invested almost exclusively in the public sector, and, being aware that there cannot be any development in Croatia without a developed enterprise sector, we want to reduce the tax burden on it as much as possible, primarily parafiscal levies, of which there are abut 500, said Raspudić.