Croatia’s GDP to Grow Less Than 3%

By 17 May 2018

ZAGREB, May 17, 2018 - Croatian National Bank (HNB) governor Boris Vujčić said on Thursday he expected GDP to grow less than 3% this year and the next, that structural reforms remained necessary, and that technological development could markedly reduce economic problems caused by demographic trends.

Speaking at a conference on Croatia's monetary market, Vujčić said the GDP growth rates predicted for 2018 and 2019 were good as they showed that indicators were improving, but also bad as Croatia should do better, which required structural reforms.

He predicted that employment will follow economic recovery and that 50,000 people will find a job this year. He said the current monetary policy trend, of maintaining a stable kuna exchange rate, would continue this year and the next, and that the high liquidity and reserves would continue to grow.

Vujčić predicts the public debt-to-GDP ratio will fall to 70%, saying this was three times faster than required, which would put Croatia in a good position for talks on entering the euro area. Inflation is expected to be 1.3 or 1.4%.

He added that demographic changes and their consequences on the labour market were one of the two biggest structural problems in the country.

Vujčić said that, according to projections, Croatia's population would drop by half a million by 2050. "The working age population will decrease, while the share of the elderly will increase, so one quarter of the population will have to support three quarters of the population, which is a potentially huge problem for the economy and puts pressure on the budget."

Also, Croatia is recording strong emigration because European Union accession opened the labour market, resulting in a rise in vacancies which cannot be filled, which prompted the government to import labour, Vujčić said, adding that, had the government not done that, it would have markedly slowed down economic growth.

He warned that the rise in foreign workers could cause political and populist resistance, for which one should prepare.

Vujčić said Croatia was among the countries with the highest share of jobs subject to automatisation, adding that adjustment must begin immediately and that society should prepare and come up with solutions in education, tax policy, income distribution and pensions.