ZAGREB, 3 July 2022 - Croatian National Bank (HNB) governor Boris Vujčić said on Sunday he expected growth of over 5% this year, significantly more than currently forecast, and that a possible stoppage of gas deliveries could lead to a recession next year.

Speaking at the opening of the HNB's 28th economic conference in Dubrovnik, he said the growth rate in Q1 was 7% and that in Q2 it could be higher.

In Q3 we have very good bookings in tourism, so a better season can be expected than in the record year for tourism, 2019, "not so much because of more arrivals as because of higher prices by as much as 40%," Vujčić said.

Three quarters will be very good and economic growth can be expected to slow down in Q4, he added.

The biggest risk is neither inflation nor interest rates but the energy market situation, with a possible stoppage of gas deliveries, which could lead to a recession in 2023, Vujčić said, adding that the HNB expected inflation to continue to increase by the middle of this year and the 2022 inflation rate close to 10%.

The inflation in Croatia as well as other countries is primarily a consequence of energy and food price rises, and energy prices depend to a large extent on the war in Ukraine, although they began rising before that, he said.

As long as the situation is such, it's difficult to expect energy price growth to calm down, although the base effect will change, he added. 

During the pandemic crisis, energy prices were at a historical minimum and are now rising because of increasing demand and economic recovery, the war in Ukraine causing additional pressure, Vujčić said, adding that it was up to the government to decide which instruments to use to impact food and energy prices.

"The longer this crisis lasts, the emptier the bag with those instruments," he said, adding that it was in Croatia's interest to change to the euro with the smallest impact on prices and that due to the high inflation, the effect would be marginal.

A bigger concern is the rise in energy and food prices for other reasons, Vujčić said.

"The effect is already positive because of the announced change of the rating and on the financial market because at the moment Croatia has lower financing and borrowing costs... The markets have incorporated that in interest rates. In EU countries outside the euro area, interest rates are much higher than in Croatia."

The long period of low and negative European Central Bank interest rates caused the money to move to the real estate sector, which contributed to the rise in property prices, Vujčić said.

"A large part of that rise does not come from loan-financed buying, About 50% of all transactions are without loans, so there is no major risk for the stability of the banking system," he said, adding that due to the rise in prices, real estate was less affordable for young people and first-time buyers. "The rise of interest prices will reduce the pressure on the real estate market."

The Dubrovnik conference will discuss post-pandemic crisis challenges and focus on inflation.

Vujčić said that since Croatia would join the euro area on 1 January 2023, the conference would also discuss European fiscal rules, monetary policy, and the expected interest rate growth as well as "problems in supply chains, which lead to price rises and production standstills, and the energy crisis as a consequence of geopolitical tensions and the war in Ukraine."

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ZAGREB, 27 Aug 2021 - The latest GDP data for the second quarter of 2021 show that Croatia formally exited recession after four consecutive quarters of downturn, the Croatian Employers' Association (HUP) chief economist Iva Tomić said on Friday.

Croatia's economy grew by 16.1% in the second quarter of 2021 compared to Q2 2020, which is the first time it grew after going down for four consecutive quarters and at the highest rate since 1996, when the national statistical office started collecting those data.

Tomić underscored that this growth rate placed Croatia among the best performers in the European Union considering the 2021 Q2 GDP.

Croatia, Spain, France, Hungary, Italy and Portugal are together with Croatia at the top of the ranking, after those countries experienced a double-digit fall in the same period last year, Tomić said underscoring that all components in GDP had risen in Q2 compared to Q2 2020.

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ZAGREB, Aug 23, 2020 - The national statistical office (DZS) will publish a report on Croatia's Gross Domestic Product next week, and analysts are agreed the report will show that the country's economy in Q2 has experienced a record decline due to the coronavirus crisis.

Six analysts interviewed by Hina expect the GDP decline to be around 13.9% on the year, with their estimates ranging from 12% to 17%.

This will be the first time since mid-2014 GDP has decreased and at the highest rate since 2000, when the DZS started keeping record of these statistics.

So far the biggest GDP decline, of 8.8%, was reported in Q1 2009, at the start of the global financial crisis.

The lockdown due to the coronavirus epidemic in Q2 caused a record drop in personal consumption, the most important component of GDP.

DZS data show that retail trade in Q2 sank by around 13% compared to the same period of last year.

Statistics also show that commodity exports dropped by 13.5% while imports dropped by 22.8%, one of the interviewed analysts said.

Industrial production went down as well, by 8.4% from Q2 2019.

All components of GDP saw a decline except for government spending, an analyst said.

This year has seen a lack of the positive impact of tourism on the economy due to restrictions on movement in most countries.

In the first six months, there were 1.5 million tourist arrivals in commercial accommodation facilities and 5.2 million overnight stays, a 77% drop from the same period of last year.

But while tourism is not of crucial importance for consumption and GDP trends in the first six months, it is crucial in Q3 because of the summer tourist season.

So far the tourist season has been much better than expected, but expectations were very modest, at 30% of last year's tourist trade.

It is a fact that tourist trade will be much lower than in the same period last year, therefore an economic decline in Q3 is expected, the more so as a further decline in commodity exports and imports is expected given the recession in Croatia's most important trade partners, Italy and Germany.

Source: Pixabay

Deep but short recession?

The economic decline in the second half of the year will be milder than in Q2 due to the relaxation of restrictions and normalisation of economic activity, however, a more significant decline is expected for the entire year than at the time of the financial crisis.

The six analysts estimate that economic activity in 2020 could go down by 10.5%, with their estimates ranging from 8.5% to 12.5%.

In 2009, at the start of the financial crisis, the economy sank by what so far has been a record 7.4%.

The government, too, expects the economic decline to be deeper than in 2009, estimating that GDP will go down by 9.4%, while the Croatian National Bank expects a decline of 9.7%. The European Commission predicts that Croatia's economic activity will drop by 10.8% this year.

While the economic decline this year will probably be deeper than during the global financial crisis, the recession is expected to be shorter. The recession caused by the global financial crisis lasted six years while this time the economy is expected to recover already in 2021.

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