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.

ZAGREB, 26 February, 2021 - Croatia's GDP contracted by a record 8.4% in 2020 because of the coronavirus pandemic, with the decline slowing down in the last quarter compared to the previous quarters of the year, the State Bureau of Statistics (DZS) reported on Friday.

GDP fell by 7% in the fourth quarter of 2020 year on year. The decline was slightly lower than forecast by analysts.

Six analysts polled by Hina projected the Q4 GDP decline at 7.3%, their estimates ranging from 6.5% to 8.3%.

It was the third quarter in a row that GDP had fallen on the year, resulting from restrictive measures aimed at curbing the coronavirus pandemic.

However, the fall in Q4 was less than in the preceding quarters. GDP contracted by 15.4% in Q2, the biggest drop since 1995 when DZS started tracking such data, while dropped by 10% in Q3.

GDP contracted by a record 8.4% for the entire year. Before that, the record fall of 7.3% was recorded at the start of the 2009 global financial crisis.

ZAGREB, 11 February, 2021 - Croatia's Gross Domestic Product is estimated to have contracted by 8.9% in 2020, while it is expected to rise at a rate of 5.3% in 2021 and 4.6% in 2022, the European Commission says in its latest Winter 2021 Economic Forecast, published on Thursday.

The economy's contraction in 2020 "is mainly attributable to the impact of the COVID-19 pandemic on service exports, particularly tourism, which suffered greatly due to the fall in demand for air travel and the imposition of travel restrictions in many countries."

Croatia's private consumption also fell, reflecting the accumulation of involuntary and precautionary savings.

Following a better-than-expected third quarter, the country's GDP is estimated to have contracted again towards the end of the year as pandemic suppression measures were reintroduced in December.

This contraction is lower than the previous projections of -9.6%, as stated by the EC in its Autumn Economic Forecast. However, the latest forecasts about the rise in 2021 are smaller in comparison to the previously projected recovery at a rate of 5.7%, while the projected growth for 2022 has been revised upward from 3.7% to 4.6%.

"Real GDP is forecast to bounce back by 5.3% in 2021, as domestic demand should rebound once pandemic containment measures are phased out and more people are vaccinated.," the EC says.

"Pent-up demand, coupled with a gradual recovery in the labour market, is expected to boost private consumption. Investment should rebound on the back of the already strong dynamics in the construction sector, supported by rebuilding efforts following the strong earthquakes in the Banija region and Zagreb.

"A gradual pick up in longer-term investment projects, is also expected. The recovery in external demand, however, is expected to be uneven. Goods exports are expected to increase strongly on the back of the improved global outlook but services exports are projected to remain subdued in both 2021 and 2022 compared to their 2019 levels.

"This is mainly because the recovery in the travel and hospitality sectors are likely to take several years. This forecast does not include any measures expected to be funded under the Recovery and Resilience Facility, posing an upside risk to the growth projections.

"HICP inflation rate dropped to 0% in 2020 on the back of a strong decline in energy prices, while core inflation remained broadly stable at around 1%. As the effect of last year’s fall in oil prices dissipates, inflation is expected to pick up slightly in 2021 but should remain subdued throughout the forecast horizon (1.2% in 2021 and 1.5% in 2022)," reads the Croatia section of the EC Winter Economic Forecast.

Croatia ranks 3rd in terms of expected rise in 2021, fourth in terms of fall in 2020

For the sake of comparison, Spain is expected to have the most robust recovery in 2021, at  a rate of 5.6%, France follows (5.5%), and Croatia ranks third among the 27 EU member-states.

When it comes to the economic downturn in 2020, Spain again tops the ranking (-11%), Greece is  the runner-up (-10%), and Malta ranks third (-9%), while Croatia comes as fourth with a negative growth rate of 8.9%.

ZAGREB, November 22, 2020 - Despite the fact that Croatia's economy somewhat recovered from the record decline in the second quarter, thanks to activities after the lockdown, analysts estimate that in the third quarter it also fell at a double digit rate compared to the previous year.

The national statistical office (DZS) will release at the end of next week the first estimate of gross domestic product (GDP) for Q3, and seven analysts who took part in Hina's survey expect a drop in GDP of 10.4% on the year.

Their estimates of the decline range from 9.5% to 11%.

Economy in recession

That will be the second quarter in a row that the economy declines on the year, which means it has entered a recession, but the decline will be milder compared to the record 15.1% drop in the previous quarter.

The record decline in Q2 was a consequence of the coronavirus pandemic and restrictive measures aimed at curbing the spread of the virus, which paralysed economic activity from the second half of March to the end of April.

"When the measures were relaxed in June, and especially during the summer months, most activities already started to recover. First high-frequency indicators confirm that Q3 will see a growth compared with the period from March to June, but a relatively steep decline in GDP on the year is inevitable," one of the analysts said.

Personal consumption continues to decline

The decline is mainly due to weak personal consumption, which is the largest component of GDP. Data from the national statistical office show that retail trade turnover fell by 7.6% in Q3 compared to the same period last year.

"That is mainly a consequence of trends in hospitality services, which didn't manage to compensate for losses caused by the closure of the economy even during the summer months, and tourist spending was markedly lower compared to the previous year," it was said in the survey.

Even though the summer tourist season was slightly better than expected at the start of the coronavirus crisis, the decline in tourist turnover was sharp.

According to the DZS's data, there were 6.6 million tourists in commercial accommodation establishments in the first nine months of 2020, which is a drop of about 63% from the same period last year, while the number of tourist nights dropped by 54% to 39.7 million.

The decline in industrial production also had a negative effect on GDP. In the past quarter, production dropped by 1.3% on the year.

That is a consequence of weak domestic demand, as well as foreign demand, as indicated by the decline in exports since the start of the year.

According to the DZS's data, the value of exports of goods in the first nine months of 2020 totalled about HRK 80 billion, which 4.8% less compared to the same period last year, while imports dropped by 10.1%, to approximately HRK 126 billion.

"High levels of uncertainty and worsening expectations also curbed stronger investment, while government spending is the only GDP component that is mitigating the negative trends on the demand side with its growth," one of the analysts said in Hina's survey.

Second wave of corona crisis

Because of the second wave of coronavirus spreading in Croatia and Europe, analysts also expect an economic decline in Q4 compared to the previous year.

It is expected that holiday spending and tourist activity will weaken due to epidemiological measures.

In addition, a further decline in exports and imports is expected, given the new restrictive measures introduced in most European countries due to the second wave of coronavirus, as is recession in Croatia's largest trading partners, Italy and Germany.

Deep, but brief recession?

Because of all this, a record decline in economy is expected in the entire 2020.

According to Hina's survey, seven analysts on average estimate that in the entire 2020 the economy could decline by 9.2%. Their estimates of the decline range from 8% to 10%.

The estimates of the decline have slightly decreased since three months ago analysts on average expected a drop of 10.5%.

According to one analyst, some of the reasons for that include a somewhat salvaged main tourist season, the resilience of construction (more) and industry (less) to negative trends, reduced gap in trade in goods (goods exports more resilient than imports) and, finally, the government's fiscal impulse through wage subsidies and maintaining household income levels, as well as the moratorium on loan repayment.

Despite being mitigated, this year's economic downturn could be greater than during the 2009 financial crisis, when the GDP dropped by a record 7.4%.

The government itself expects a greater drop in economy than in 2009, so it estimates that the GDP will decline by 8%.

The Croatian National Bank also expects a drop of about 8%, while the European Commission estimates that Croatia's economy will decline by 9.6% this year.

While the drop in GDP in 2020 will likely be deeper than during the global financial crisis, it is expected that this recession will be shorter. Then, the recession lasted for six years, while this time the economy is expected to grow as soon as next year.

ZAGREB, Nov 11, 2020 - Euro adoption in Croatia will generate a significant and permanent benefit for the economy and the positive effects will be particularly reflected in tourism due to the size of that sector and its high share of tourist demand in EU member states, the Ministry of Tourism and Sports said on Wednesday.

"Visitors from countries where the euro is legal tender generate almost 70% of Croatia's total tourism revenue and about 60% of total bed nights come from the euro area. Introducing the euro will also help boost international cooperation, investment and promotional effects on the tourism sector," the ministry said in response to a query from Hina following a meeting of the National Council for Euro Adoption.

The ministry underscored that Croatia is strongly integrated with the euro area through trade, hence introducing the euro in Croatia will generate significant benefits for the economy.

"It is important to observe and estimate how introducing the euro will affect individual sectors in Croatia, primarily tourism which accounts for a significant share of Croatia's GDP and additionally generates a multiplying effect on other economic activities," the ministry said.

It underlined that "available empiric research mostly indicates positive implications for tourism in introducing the common currency."

Research indicates that introducing the euro has positively impacted foreign investments, hence it can be expected that introducing the euro will encourage investors in Croatia, primarily as there will no longer be any uncertainty related to exchange rates and because of greater transparency in doing business, the ministry concluded.

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As Novac/Augustin Palokaj writes on the 6th of November, 2020, the Croatian GDP drop should be at around 9.6 percent this year, which is among the largest declines in the EU, as only Spain with a 12.4 percent drop and Italy with 9.9 percent drop will have a larger decline than that.

The good news for Croatia is that mass job losses have been avoided so far, that unemployment growth is much lower than the economic downturn and that unemployment will drop again next year. Public debt in all EU countries is skyrocketing, which is understandable in the circumstances of the biggest crisis to ever hit it. Here in Croatia, public debt will rise to 86.6 percent of GDP this year, but should start falling once again next year. These are the main forecasts for Croatia from the autumn economic forecasts published by the European Commission in Brussels.

Croatia will begin to recover next year when GDP growth is expected to be 5.7 percent, and in 2022 - 3.7 percent.

These are better forecasts for Croatia than those published by the European Commission back in July, in which it forecast a 10.8 percent Croatian GDP drop. However, the Commission now predicts a slightly slower recovery next year, which, according to the latest forecasts, should be 5.7 percent, while earlier forecasts mentioned a possible growth in 2021 of 7.5 percent.

At the level of the entire European Union, GDP should fall by 7.4 percent this year, the least in Lithuania and Ireland with just over 2 percent and the most in Spain by 12.4 percent, Italy 9.9 percent, Croatia 9.6 percent, France 9 , 4 percent and Portugal 9.3 percent.

France and Italy, with a drop in employment of over 10 percent, had the largest impact on the labour market, while here in Croatia, the decline stood at only 1.4 percent. Unemployment in Croatia should be at the level of 7.7 percent this year, which will be at the exact average unemployment rate across the EU. Unemployment in Croatia should fall to 7.5 percent next year, and then fall again below 7 percent in 2022.

This situation in Croatia is, of course, a consequence of the crisis caused by the ongoing coronavirus pandemic, and preventing the collapse of the labour market is the result of multiple government measures. However, since they could dry out, this area could soon become far more sensitive.

However, the Commission predicts that the labour market will gradually recover and that private consumption and public investment will play a major role in economic growth. The reconstruction of Zagreb following the earthquake and the use of funds from the EU Recovery Fund will play a major role in this. Much will also depend on the recovery in the countries that are Croatia's main trading partners.

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As Novac/Gojko Drljaca writes on the 21st of October, 2020, a new wave of coronavirus cases is seeing Europe slide into a double-dip recession scenario, this is the thesis with which The Financial Times has come out. A number of European governments are tightening their epidemiological measures, and an increase in the number of cases is leading to a drop in consumer optimism. What does this mean for Croatian GDP?

After reducing the number of cases during the summer, which saw the easing up of the epidemiological measures and the recovery of European economies, we're now witnessing the continuation of the scenario which, in the event of an increase in the number of cases, envisages a prolongation of what has become the status quo and even a deepening of the recession.

Although the last session of the Croatian National Bank Council a few days ago estimated that Croatia will end the year with a GDP decline of 8 percent and that its growth of 5.2 percent is expected in 2021, we've since learned that the central bank is already thinking about revising their relatively optimistic estimates.

For the final conclusion, the central bank will wait and see if the Croatian Government will react with stricter epidemiological measures that could affect business activities.

Well-informed people claim that the behaviour of Croatian consumers has already started to change due to the growing number of cases of infection, which is reflected in the decline in traffic in some shopping centres and restaurants. It should be noted that the Croatian National Bank has already concluded that "during the third quarter, at the same time as the epidemiological situation worsened, signs of a slowdown in recovery became visible, with consumer and business expectations in services and industry deteriorating in September."

According to a statement from the Croatian National Bank, the annual inflation rate in August remained in negative territory (-0.1 percent), real activities and the labour market are in a much more unfavourable situation than before the pandemic.

Although we had a good tourist season for the year with the pandemic, tourism will still bring much lower revenues in 2020. The Croatian National Bank is cautious because they consider forecasting during a pandemic to be extremely difficult due to numerous unknowns.

''We're in a recession and it's easily possible that in the event of the continuation of this trend of the epidemic, the recession will continue in the fourth quarter, and possibly in the first quarter of next year. Delaying the start of the recovery would deprive Croatian GDP of 1 to 2 percentage points annually. In that case, the decline for 2020 would amount to the previously expected 10-11 percent instead of 8-9 percent, as expected before the autumn wave,'' said economist Velimir Sonje.

Due to the growing number of cases, the tightening of epidemiological measures has been announced by all major European countries. Germany, France, the United Kingdom, Spain and the Netherlands - all of which recorded strong growth in the number of cases of infection and all took new measures last week.

Smaller European countries facing an increase in the number of cases are behaving identically. The Czech Republic, which has recorded the largest increase in the number of cases, has reached a high level of restrictions. Belgium has announced the closure of cafes and restaurants for four weeks. As of Monday, they are introducing curfews, bans on gatherings and restrictions on the sale of alcohol.

Switzerland has expanded its obligation to wear masks. A nocturnal epidemiological curfew has been introduced in Paris since midnight on Saturday. In Catalonia, bars and restaurants have been closed in and around Barcelona. The Italian authorities are arguing over what to do: part of the government is calling for stronger measures while Conte insists the new rise in cases is not as dangerous as the first, but they will certainly come up with new measures in any case.

In Sweden, the regional authorities are left to advise citizens to reduce their overall mobility and to adhere to social distancing measures.

Fiscal exposure

Senior Allianz economist Katharina Utermohl commented on the surprising growth rate of cases across Europe and stressed that they are already seeing further economic downturn in a number of countries in the fourth quarter.

"A new recession is absolutely possible," Utermohl said. Google’s mobility data in October again points to a significant decline in major European cities. Countries with large service sectors such as France, Spain and Portugal will once again have particularly major problems.

It is very inconvenient that the countries of the European Union have already dramatically increased their fiscal exposure this year due to the global coronavirus pandemic. The European Commission has announced a plan according to which Eurozone members are expected to have an aggregate fiscal deficit of 976 billion euros this year.

This means that national fiscal deficits will be 10 times higher than last year or those projected for this year. Although the European Central Bank's interventions have managed to keep the borrowing costs of the most vulnerable countries (Italy, Greece) very low, the need for new fiscal interventions brings the EU into a completely unexplored territory, which some call "fiscal extravagance".

ECB Governor Christine Lagarde warned over the weekend that fiscal stimulus should continue to be insisted on, regardless of the risks, in order to avoid "labour market hysteria" and prevent a wave of bankruptcy. The IMF also supports this thesis.

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