Sunday, 18 July 2021

HNB Governor: Croatia's Q2 GDP Growth Rate Likely to Be About 18%

ZAGREB, 18 July, 2021 - The Croatian National Bank (HNB) Governor, Boris Vujčić, said on Sunday that Croatia's economy would likely reach a growth rate of about 18% in the second quarter of 2021, which was partly due to the low base in the Q2 2020 when the country had experienced a strong downturn.

Vujčić told the press in Dubrovnik where he had formally opened the 27th international economic conference, that Croatia's economic activity for the whole of 2021 would likely rebound at a rate of 6.8%, however, the epidemiological situation caused by the COVID pandemic still created uncertainties.

Vujčić explained that in the worst-case scenario, the GDP could rise by 4.8% in 2021.

The governor underscored a significant role of the government that provided job-retention grants which helped save jobs and made it possible for the recovery to be faster.

The crisis has made the ongoing digitisation processes faster, prompting remote working. I expect a large number of people to go back to work sites. Only after all things go back to normal, we will be provided with the real picture regarding the labour market that has behaved during the pandemic differently than during the big financial crisis in 2009 and 2010. In Croatia, we have already reached the 2019 levels in terms of employment figures and we are now faced with the recurring problem of shortage of skilled workforce, he said.

Commenting on the European Union's Next Generation plan, he said that that would be crucial for the economic recovery in the medium term.

In the next two years, the maximum of available funds will be tapped, and this amount of the funds withdrawn from the EU will have a positive impact on Croatia's GDP, according to his explanation.

The 27th Dubrovnik Economic Conference brought together about 70 experts and researchers from abroad and Croatia as well as representatives of financial institutions, central banks and the financial sector.

Some of the topics on the agenda of the conference are the further strengthening of the role of the state, particularly through the EU Next Generation programme, exchange mechanisms, corporate bankruptcies and so on.

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Sunday, 20 June 2021

Croatian National Bank Pumps 900 Million Kuna into System

June the 20th, 2021 - The Croatian National Bank (CNB/HNB) has pumped a huge amount into the system for the second time since this year began as the economic situation globally continues to be rocky.

As Poslovni Dnevnik/Ana Blaskovic writes, for the second time this year, the Croatian National Bank has needed to intervene in the foreign exchange market to correct the exchange rate of the domestic currency (kuna) against the euro.

The central bank bought 120 million euros from commercial banks on Wednesday at an average exchange rate of 7.497346, pumping 900 million kuna back into the Croatian financial system.

Although there were no significant slips to speak of in the market before, the supply of the banking sector slightly pulled the exchange rate from 7,488 down to 7,485, but after a continuous appreciation in the previous month, the Croatian National Bank, as the regulator, decided to intervene and make the move.

While the second intervention this year resulted in the ''printing'' of Croatian kuna, when the previous such intervention took place back in April, the Croatian National Bank made a withdrawal from the system. With the sale of 190 million euros to banks, around 1.44 billion kuna in total was withdrawn, which stabilised the exchange rate back then at the level of 7.570405 kuna.

On Thursday, the middle exchange rate of the euro on the exchange rate list of the Croatian National Bank (which has been applied since Friday) reached 7.484807 kuna. When we last saw these levels, it was mid-August last year at the very peak of the tourist season, which ended very abruptly shortly after when Croatia unfortunately ende up being placed on the red lists of most countries from which the tourists were typically arriving here from.

This year, a better yet still wobbly summer season is expected than last year, and with it the inflow of euros, which will, as every year at that time, push the kuna exchange rate down. It should be noted that by joining the exchange rate mechanism, Croatia undertook to keep the exchange rate in the range of +/- 15 percent around the central parity of 7.53450.

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Friday, 14 May 2021

Croatian Economic Recovery Certain, National Bank Warns of Threats

May the 14th, 2021 - Croatian economic recovery is certain, and with the vaccination rollout across the country and indeed the rest of the world, particularly in Croatia's emitting markets picking up, the situation with the domestic economy is slowly but surely regaining strength. Despite that, the Croatian National Bank (CNB/HNB) has warned of threats.

As Poslovni Dnevnik/Ana Blaskovic writes, Croatian economic recovery has actually been happening at a far more rapid pace than most could have ever predicted just a few months ago, but the financial system remains exposed to significant risks due to strong public debt growth, inflation in terms of property and the risk of what are known as zombie businesses - all of which are the undeserving victims of the pandemic.

The CNB Council warned that fiscal policy, among other measures, contributed to mitigating the effects of the ongoing coronavirus pandemic, and the decline in revenues and generous support for the Croatian economy spilled over into a jump in public debt (with increased interdependence between banks and the state itself). For the time being, the risks of government financing are mitigated by low risk premiums and favourable financing conditions, as well as generous European Union (EU) funds which have been made readily available.

The problem that has been snowballing for some time now is the warming up of the situation in the real estate market. Although they don't explicitly mention inflation, the CNB points out that "high and rapidly rising residential property prices are increasingly being separated from the economic values ​​that should determine them". The number of transactions during the pandemic decreased somewhat, but prices only slightly slowed growth on the wave of cheap money, government subsidies and stable levels of employment and income.

Housing loans have been growing rapidly, and although they're granted with prudent lending conditions, "part of the loan shows increased repayment ratios to income, which in unfavourable circumstances may exacerbate the effects of disturbances in the real estate market."

Finally, with the longer duration of the coronavirus pandemic and fiscal stimulus associated with it, the threat of corporate sector zombification grows. Parts of the economy continue to suffer from anti-epidemic measures, and while premature repeal of some measures can jeopardise healthy enterprises, those companies with unsustainable business models can also actuallt benefit from maintaining them for too long

. "This may reduce corporate dynamism and zombify the corporate sector, with unfavourable implications for Croatian economic recovery, growth and financial stability," the CNB warned.

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Thursday, 29 April 2021

Croatian National Bank: Banks Still Do Not See Climate Change As Serious Threat to Business

ZAGREB, 29 April, 2021 - Most banks in Croatia still do not see climate change as a serious threat to their business, a survey carried out by the Croatian National Bank (HNB) showed on Thursday.

The survey was presented as part of an online conference called "The Role of Banks in Greening Our Economies", organised by the HNB and the European Bank for Reconstruction and Development (EBRD).

The survey, carried out among 20 Croatian banks, showed that the banks did not see climate change as an immediate and serious threat to their business.

Only one bank said that climate change would have a generally significant impact on the Croatian banking system, 11 banks said that the impact would be moderate, while eight said that it would be insignificant.

Only two banks have a climate change-related strategy included in their overall business strategy, expressing concern about risks and anticipating possible changes to the regulatory framework. On the other hand, 15 banks said they were waiting for the regulators to take the initial steps in this regard.

Responding to the question about risk materialisation, 10 banks said that climate risks would not materialise in the near future, while 11 said they were not attaching major importance to exposure to climate change and environmental risks to their portfolio.

Physical risk includes the financial impact of climate change, and five sectors in Croatia are particularly vulnerable to it - tourism, agriculture, forestry, fisheries and energy distribution. More than a quarter of Croatian banks' exposures to non-financial institutions concern these sectors, mostly tourism, the survey showed.

However, none of the banks has so far assessed its exposure to climate and environmental risks, citing lack of reliable data and methodology as well as lack of qualified staff.

The sectors facing the biggest transition risk from climate change are transport and traffic, agriculture, motor vehicles, energy and oil products, and construction.

Only 9 banks offer green product to their customers

Most banks recognise opportunities brought by the transition to a low-carbon economy, with three-quarters of them saying they could benefit from this transition by financing green projects. However, only nine banks said they were offering a green product to their customers, such as loans for the energy renovation of buildings or the purchase of electric vehicles.

 HNB Governor Boris Vujčić said in his opening remarks that both the HNB and EBRD had acknowledged their responsibility for highlighting the role of banks in the climate transition. He recalled the Paris climate change agreement of 2015, which has been ratified by 189 countries, saying that it set ambitious goals to reduce greenhouse gas emissions and prevent further global warming.

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Thursday, 22 April 2021

Central Bank Governor Boris Vujčić Says GDP Contracted By 7.8% in H1 2020

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.

For more about politics in Croatia, follow TCN's dedicated page.

 

Saturday, 10 April 2021

Croatian National Bank Makes First Foreign Exchange Intervention of 2021

April the 10th, 2021 - The Croatian National Bank (HNB/CNB) has made the very first foreign currency exchange market intervention of the year to stabilise the Croatian kuna.

The ongoing coronavirus pandemic has made life very difficult for banks, not in terms of revenue so much but in terms of attempting to stabilise domestic currencies as economic blows keep on being dealt by the spread of the virus and the subsequent introductions of lockdown measures to try to mitigate the escalating public health crisis.

The Croatian National Bank, with Boris Vujcic as its governor, hasn't been immune to the proverbial storm clouds caused by this unprecedented and seemingly unrelenting global situation, and numerous interventions involving the euro and the kuna have taken place over the last pandemic-dominated year.

On Thursday last week, the Croatian National Bank stepped in to make its first foreign currency exchange intervention of 2021.

As Ana Blaskovic/Poslovni Dnevnik writes, to be more precise about what the intervention entailed, the central bank sold 190 million euros to the banks at an average exchange rate of 7.570405 Croatian kuna per euro, as such withdrawing a massive 1.438 billion kuna in total from the system.

This was, as previously stated, the very first foreign exchange intention of 2021, which was done to stabilise the Croatian national currency. The previous intervention by the national bank took place back at the end of March 2020, as the pandemic began to errupt across Europe.

Back then, 618.5 million euros were sold to the banks, and the exchange rate stabilised at 7.608529. In the meantime, four interventions were held in which the Croatian National Bank was the one to purchase the euros.

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Wednesday, 7 April 2021

PM Andrej Plenković: "Decision to Return Child to Biological Family Was Bad"

ZAGREB, 7 April, 2021 - PM Andrej Plenković said on Wednesday, in a comment on the death of a 2.5-year-old girl caused by domestic violence, that the decision to return the child to its biological family was bad and that those who made it should bear the consequences, noting that social care did not require a separate ministry.

"I don't know why the proposal to separate social care from the 'mega-ministry' is being made," Plenković told reporters in the parliament.

He recalled that in 2013, during the term of the Zoran Milanović government, a case similar to the last one happened in Slavonski Brod, and at the time there was a separate ministry of social care.

When they lack arguments, people make banal, nonsensical statements, Plenković said, adding that Labour, Pension System, Family and Social Policy Minister Josip Aladrović was capable of heading the ministry because the ministry had its services, directors, state secretaries and social welfare centres across Croatia.

"In this specific case with a fatal outcome, the assessment and decision to return the little girl to her biological family was a bad one and for that kind of professional mistake responsibility lies with those who make it," he said.

Plenković went on to say that since the case of an incident on Pag Island in 2019, when a father threw his four underage children from the first-storey balcony of his house, a lot had changed in the social care system.

"During the terms of ministers (Nada) Murganić, (Vesna) Bedeković and now Minister Aladrović, we have worked to strengthen the system of social care. We have worked to raise social workers' wages as well as standards of physical and technical security, so now welfare centres have guards," he said.

The government has increased outlays for social care and allowances and it expects the system to function better and to the benefit of children, he said.

Unfortunately, there are problems, there are dysfunctional families, horrible things are done by biological parents but they will all answer for their actions in a legal procedure, Plenković said, adding that he was appalled and extremely saddened by the latest case.

Speaking of illogical provisions in the foster care law, adopted by his government, Plenković said that every legal solution could be improved.

It is important to speed up foster care procedures and that all children who live in environments that are not appropriate and not safe find a safe place to live. We will improve the law. There is always something to improve, he said.

AstraZeneca vaccine

Plenković also talked about a decision the European Medicines Agency is expected to make on the age groups for which the AstraZeneca COVID-19 vaccine is acceptable.

He said he would meet today with Health Minister Vili Beroš and the directors of the Croatian Institute of Public Health and the Croatian agency for medicinal products to discuss the information they had, and that later today Beroš would participate in a video conference of EU health ministers.

"The most important thing is that the member states' ministers of health have a consolidated position, whatever the EMA's recommendation, and that there are no different practices. Different practices undermine the reputation of a vaccine, whatever its quality, which has happened with AstraZeneca from the start, unfortunately."

Plenković said the confusion about that vaccine had resulted in some people refusing it, which was not pleasant either for the company or anyone involved in vaccination.

He also responded to criticism that he had promised that a majority of the Croatian population would be vaccinated by spring yet had now postponed this until July.

He said AstraZeneca had promised to deliver 120 million doses to the EU in the first quarter but delivered 30 million. Croatia was to have received 1.7 million doses by 31 March and vaccinated more than 800,000 people, he added.

Plenković said 600,000 doses had been delivered and that 2.6 million would be by 30 June, adding that the government was working on having other vaccines available in case of more problems with AstraZeneca.

"Had we ordered 100% from each company and paid for 25 million doses, then all questions would have been - whose money are we spending and why are we buying three or four times as many doses as we need?"

He said an unforeseen thing had happened, not with a no-name company but one of the largest pharmaceutical companies in the world.

Central bank governor, fighter jets, former JANAF CEO's arrest

Asked if he had known about central bank governor Boris Vujčić's correspondence with representatives of the Knighthead fund concerning the Agrokor conglomerate, Plenković said the question should be put to Vujčić.

Speaking of the procurement of fighter jets, he said consultations were under way and that a decision would be made in time. All offers are valid and we'll take some more time to decide, he added.

Asked to comment on the new arrest of Dragan Kovačević, former CEO of the JANAF oil pipeline operator, Plenković said everything about it should be said by the USKOK anti-corruption office and the State Attorney's Office.

For more about politics in Croatia, follow TCN's dedicated page.

Friday, 19 March 2021

Advantages of Euro Currency Significant but Economy Needs to be More Flexible

ZAGREB, 19 March, 2021 - Croatia will enter the euro area on 1 January 2023 at the earliest, and introducing the euro has a number of advantages but for those advantages to be greater the economy needs to be more flexible, including with regard to the labour market, a conference heard on Friday.

The conference, focusing on the introduction of the euro as the official currency in Croatia, was organised by the students' association Financial Club.

Croatian National Bank (HNB) Governor Boris Vujčić said in his opening remarks that Croatia cannot enter the euro zone before 1 January 2023.

"Whether Croatia will enter the euro area on 1 January 2023 or a year or two later, depends on when it will meet the nominal convergence criteria," said Vujčić, recalling that in July 2020, Croatia entered the European Exchange Rate Mechanism II (ERM II), a sort of waiting room for the euro.

He explained that the ERM II envisaged a minimum two years of participation in it so that a candidate aspiring to join the euro area can meet the nominal convergence criteria (Maastricht criteria). On the other hand, if it does not satisfy the criteria, which refer to the stability of the exchange rate, prices and interest rates, the budget deficit and the level of foreign debt, a country can remain in the ERM II indefinitely, Vujčić said.

He recalled a survey indicating that citizens fear that with the introduction of the euro the standard of living will deteriorate and prices will increase. However, surveys in countries that have already introduced the euro indicate that prices increased by 0.23 percentage points on average in the year when the euro was introduced, mostly for everyday goods such as coffee. Prices of such products are relatively lower so their increase could have been relatively high due to rounding off.

"That left the impression in public that prices increased more than they did," explained Vujčić, underscoring that the standard of living did not fall in any country that introduced the euro but rather it improved.

Ćorić: Biggest advantage to companies exporting to euro area

Minister of Economy and Sustainable Development Tomislav Ćorić said that it was clear that citizens would not start living better on the first day of introducing the euro, however, what points to better prospects was the fact that the macro environment in the euro area was free of risks that non-member countries were faced with.

The risk premium in all countries that entered the euro area has dropped, said Ćorić, noting that that was something that in normal circumstances should  bring benefits to Croatia, such as reducing yields on long-term security instruments and lower interest rates on commercial and consumer loans.

Considering, however, that we live in "fairly radical economic times," and a period of very low interest rates, the effects which countries that entered the euro area some ten years ago had would be somewhat lower, however, they would still be significant, he said.

The advantages are potentially biggest for export-oriented companies considering that the exchange rate risk will be eliminated, he said.

Ćorić said that the project for euro introduction was not an end in itself but was primarily a very good tool for Croatia's long-term economic growth and development.

Mačkić: Flexibility of labour market, final goods and services market

President Zoran Milanovic's economic adviser, Velibor Mačkić, conveyed the president's message saying that it was necessary to discuss the benefits and potential harm of Croatia joining the euro area.

Mačkić believes that Croatia has not developed its own institutions sufficiently and that that poses a problem. "The country needs a different economy, a much more flexible economy, to be able to benefit more significantly from the monetary union," said Mačkić.

He added that the labour market and the market of final products and services need to be more flexible.

Mačkić underlined the importance of an efficient fiscal policy and of the reform of the tax system which Mačkić believes needs to change from "a consumption-based to income-based tax system."

For more about business in Croatia, follow TCN's dedicated page.

Friday, 29 January 2021

Boris Vujcic Awarded for Croatian Monetary Reform Policy

January the 29th, 2021 - Boris Vujcic, the Croatian National Bank's Governor, has been awarded for the Croatian monetary reform policy which enabled the stability of the Croatian kuna against the euro.

As Poslovni Dnevnik/Ana Blaskovic writes, CNB Governor Boris Vujcic has received the Lamfalussy Award for 2021, named after the "father of the euro" Baron Alexandre Lamfalussy, of the Hungarian National Bank.

Vujcic was awarded for the Croatian monetary reform policy, which enabled the stability of the kuna against the euro, which subsequently enabled Croatia to join the European Exchange Rate Mechanism back during the summer, and they also state his key role as deputy chief negotiator with the European Union (EU).

In his thanks for this recognition, Vujcic focused his speech on the issue of monetary policy in emerging markets when the largest central banks resort to unconventional instruments.

With humorous associations to the novel A Hitchhiker’s Guide to the Galaxy and Monty Python, he emphasised the extremely low real interest rates that are likely to become permanent features of economies.

"The main reason why emerging market countries started implementing APP from today's perspective is obvious - these programmes were successful," said Vujcic, recalling that the CNB made one of the largest buyouts in emerging markets last year, about 5.5% of the country's GDP, which is only about half the amount of the ECB programme in that year”.

He added that Croatia's conclusion of a currency swap agreement with the ECB and its entry into ERM II also helped stabilise the market. He pointed out that the recent development of the monetary policy regime in emerging markets “cannot be taken for granted” because they do not issue reserve currencies and heavily depend on foreign borrowing.

The Belgian economist and central banker Lamfalussy was born in Hungary in 1929. He participated in the work of the Delors Commission, which laid down the foundations of the European Economic and Monetary Union, with a prominent role in founding the ECB and creating regulation of the European financial system. He died in 2015, the Lamfalussy Prize was established back in 2014 and is awarded for outstanding professional achievements and life achievements of individuals that affect the work of central banks and the functioning of the international financial system.

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Monday, 25 January 2021

HNB Governor Boris Vujčić Winner of the 2021 Lamfalussy Award

ZAGREB, 25 January, 2021 - The Executive Board of the Central Bank of Hungary (MNB) has decided to give the 2021 Lamfalussy Award, named after the late Baron Alexandre Lamfalussy, the "father" of the euro, to Croatian National Bank (HNB) Governor Boris Vujčić.

The MNB Executive Board said it wanted to acknowledge Vujčić's achievements as HNB Governor, namely the reform of Croatia's monetary policy that had enabled the stability of the kuna in relation to the euro, which led to Croatia's accession to the European Exchange Rate Mechanism II (ERM II) last summer.

The MNB Executive Board also cited Vujčić's role in organising the Dubrovnik Economic Conference, which is attended every year by renowned economists and creators of monetary policies from around the world.

Vujčić, the keynote speaker at an online conference on the future of monetary policy after COVID-19 pandemic, thanked the MNB for the award.

Lamfalussy, a Belgian economist and central banker, was born in 1929 in Kapuvár, Hungary. He studied at the Catholic University in Leuven and Nuffield College in Oxford, where he earned a PhD in economics. He took part in the work of the Delors Commission, which laid foundations for the European Economic and Monetary Union, was the first president of the European Monetary Institute and had a prominent role in the establishment of the European Central Bank and in the creation of regulations of the European financial system.

The MNB established the Lamfalussy Award in 2014.

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