Croatian National Banks Expects Lower GDP Growth Due to Agrokor Crisis

By 3 June 2017

HNB Governor Vujčić expects up to 0.4 percent lower GDP growth this year due to the Agrokor crisis.

On Saturday, the Governor of the Croatian National Bank (HNB), Boris Vujčić, said that the first consequences of the crisis in Agrokor would be seen in macroeconomic indicators for April and estimated that the GDP growth rate for this year would be reduced by 0.3 to 0.4 percent, provided that the worst-case scenario is avoided, reports Večernji List on June 3, 2017.

As he pointed out in an interview, the recent GDP growth estimate for the first quarter of 2.5 percent was fully in line with the HNB's forecast. For the whole year, HNB expects a growth rate of 2.8 percent. A traditional mid-year news conference would be held in July when HNB would present its updated forecast if a revision is needed, said Vujčić.

Responding to the question about when the first effects of the Agrokor crisis would be seen in overall economic growth, he stated that they might influence the numbers for April. “However, the real data that will show the actual impact of Agrokor's restructuring on GDP will be seen only later, in May, June, July and over the next few months. Then we will see how much the GDP growth will be reduced. Our estimate is that the growth of GDP will be reduced by 0.3 to 0.4 percent if the worst-case scenario is avoided. It will certainly have a negative impact, but it will not be too strong,” said Vujčić.

He pointed out that the problems of Agrokor were gradually spreading to other companies. However, he added that Agrokor was not the whole Croatian economy, but only the largest company and that the firm did not disappear completely but just slowed down its growth due to restructuring. “The effects will be seen in the banking system. It is certain that the profitability of the banking system in 2017 will be significantly lower because of what is happening with Agrokor and its suppliers,” said Vujčić

“The question is how will they find their business model for the future. I think this issue is more important than a short-term shock to GDP growth, which will be negative but relatively moderate, and I do not believe it will lead to a recession,” Vujčić said.

Asked whether the new 400 million euro loan to Agrokor will be enough for save the company, Vujčić answered that this should be the last tranche. “That should be sufficient if the company is restructured to function normally. If that is not enough, that would mean that money was still leaking somewhere,” Vujčić concluded.