Wednesday, 13 April 2022

HNB Revises Down 2022 GDP Growth Forecast From 4.1% to 3.2%

ZAGREB, 13 April 2022 - The Croatian National Bank (HNB) expects in its baseline scenario that its projection of real GDP growth of 4.1% in 2022, published in December 2021, will go down to 3.2%, mostly due to unfavourable indirect and direct economic effects of the Russian invasion of Ukraine.

The HNB Council said in a statement after a session on Wednesday that the available highly frequent data indicate an acceleration of real activity growth in Q1, even though the annual growth rate could go down compared to the previous quarter.

"In the remaining part of the year economic growth is expected to slow down, primarily due to unfavourable indirect and direct economic effects of the Russian invasion of Ukraine," the HNB says, recalling that prices of energy products and other raw materials on the global market have increased and become more volatile.

In its baseline scenario, which envisages a relatively short duration of the Ukraine war and gradual normalisation of prices of energy products and raw materials on the global market, the HNB has reduced the expected real GDP growth in 2022 from the 4.1% projected last December to 3.2%.

With regard to inflation, the HNB says that it picked up in early 2022 due to growing prices of energy products and other raw materials as well as supply chain disruptions, resulting in higher prices of certain semi-finished products (such as semiconductors) and high freight rates.

For the entire year 2022 the HNB expects inflation to be at an average 5.4% (after 2.6% in 2021).

The strong recovery of economic activity last year resulted in a significant drop in the share of public debt in GDP, to 79.6% at the end of 2021, and in the first two months of 2022 a mild decrease in the deficit was reported compared to the same period of last year.

In the baseline scenario, the HNB expects the nominal budget balance to continue improving and the general government deficit to continue decreasing in 2022.

Due to energy price hikes the HNB expects 2022 to see a smaller surplus in the current and capital accounts than last year, but expects it to stay at a relatively high level of 5% of GDP.

The HNB Council today made a decision wrapping up the process of resolution of Sberbank d.d.

The Council also discussed current economic and financial trends and adopted a monetary policy projection for the period from 2022 to 2025. Also discussed was a report on the state of the banking system in 2021 and the Council adopted a decision on the HNB's financial reports for 2021.

For more, check out our business section.

Monday, 28 March 2022

Eurostat: Croatia Catches Up with Latvia on GDP Per Capita

28 March 2022 - In 2021, Luxembourg and Ireland recorded the highest levels of GDP per capita expressed in purchasing power standards, while Croatia overtook Slovakia and ranked alongside Latvia, according to Eurostat's flash estimate. 

Luxembourg's GDP per capita was 177% above the EU average, while Ireland's was 121% above.

The high GDP per capita in Luxembourg is partly due to the country's large share of cross-border workers in total employment. While contributing to GDP, these workers are not taken into consideration as part of the resident population which is used to calculate GDP per capita, Eurostat said.

The high level of GDP per capita in Ireland can be partly explained by the presence of large multinational companies holding intellectual property. The associated contract manufacturing with these assets contributes to GDP, while a large part of the income earned from this production is returned to the companies’ ultimate owners abroad, Eurostat noted.

Luxembourg and Ireland were followed by Denmark (33% above), the Netherlands (32% above), Sweden (23% above) and Belgium (22% above).

In contrast, Croatia (30% below the EU average), Slovakia (32% below), Greece (35% below) and Bulgaria (45% below) registered the lowest GDP per capita, Eurostat said.

Croatia had made an improvement since 2020, when its GDP per capita was 36% below the EU average, and caught up with Latvia, which was 29% below the EU average in 2021.

France (4% above) and Malta (2% below) were closest to the EU average.

Friday, 21 January 2022

Croatia Among EU Countries with Biggest Fall in Public Debt to GDP Ratio

ZAGREB, 21 Jan 2022 - At the end of the third quarter of 2021 the public debt to GDP ratio in the EU and euro area decreased, reflecting an accelerated economic recovery from the corona crisis, and Croatia was among the most successful in lowering the debt-to-GDP ratio, according to the data provided by Eurostat on Friday.

Economic activity in the EU and the euro area picked up strongly last summer thanks to intensive vaccination rollout programs coupled with the relaxation of anti-epidemic measures.

Governments stepped up borrowing to finance support measures for enterprises and households and accelerated economic recovery resulted in a lower debt to GDP ratio.

In the end of the third quarter of 2021, the government debt to GDP ratio decreased to 90.1% from 90.9% in the preceding quarter and to 97.7% in the euro area from 98.3%.

Compared with the third quarter of 2020, the government debt to GDP ratio rose in both the euro area by 1.1 percentage points and 0.9 percentage points in the whole EU.

Croatia alongside Austria and Hungary

The highest ratios of government debt to GDP at the end of the third quarter of 2021 were recorded in Greece (200.7%), Italy (155.3%), Portugal (130.5%), Spain (121.8%), France (116.0%), Belgium (111.4%) and Cyprus (109.6%).

The consolidated government debt in Croatia at the end of September 2021 amounted to HRK 344.7 billion, which was an 82.4% share of GDP. At the end of June, it was HRK 340.8 billion or 86.1% of GDP.

At the end of September 2020, Croatia's government debt to HRK 326 billion or 84.7% of GDP.

The closest results to Croatia were registered in Hungary and Austria with ratios of 80.3% and 84.1% of GDP respectively.

The lowest government debt to GDP ratios was registered in Estonia (19.6%), Bulgaria (24.2%), and Luxembourg (25.3%), Eurostat reported.

At the end of the third quarter of 2021, the largest decreases in government debt to GDP ratio compared to the previous quarter were recorded in Greece (-6.6 pp), Portugal (-4.9 pp), Croatia (-3.7 pp), Cyprus, and Belgium (both -2.3 pp), Czechia (-2.2 pp), and Austria (-2.1 pp).

The largest increases in the ratio were observed in Hungary (+2.9 percentage points – pp), France (+1.5 pp), and Romania (+1.1 pp).

Croatia was among those countries with the greatest decrease in government debt to GDP compared to September 2020 (-2.3 pp).

The largest decreases compared to September 2020  were observed in Cyprus (-6.4 pp), Ireland (-3.6 pp), the Netherlands (-2.5 pp), Denmark (-2.4 pp), Croatia (-2.3 pp), and Sweden (-2.2 pp).

The largest increases in the ratio were recorded in Spain (+7.8 pp), Hungary (+6.5 pp), Malta (+5.7 pp), Austria (+5.6 pp), and Romania (+5.5 pp), Eurostat reported.

For more, check out our dedicated politics section.


Monday, 3 January 2022

Croatia's Total Debt to GDP Ratio 82.4% at September's End, Down 2.3 pp Y/Y

ZAGREB, 3 Jan 2022 - The Croatian National Bank (HNB) has recently published figures about the country's debt, showing that the total debt amounted to HRK 344.7 billion at the end of September 2021.

"Measured against the annual GDP, the total debt amounted to 82.4% of GDP at the end of September 2021, and 84.7% of GDP at the end of September 2020, which is a decrease of 2.3 percentage points on an annual level, but also a decrease of 3.7 percentage points over the previous quarter, when this share was 86.1%."

According to final data provided by the central bank, "the total consolidated debt of all general government sub-sectors reached HRK 344.7bn at the end of September 2021, up HRK 3.9bn (or 1.1%) since the end of June 2021 and up by HRK 18.7bn (or 5.7%) since the end of September 2020."

The annual debt growth was due to an increase in the domestic debt by HRK 7.9bn (or 3.6%) and in the external debt by HRK 10.8bn (or 10.2%). Comparing the developments between the two quarters, domestic debt grew by HRK 6.3bn (or 2.9%), while external debt shrunk by HRK 2.5bn (or 2.1%) from the last quarter.

The HNB notes that although the general government debt rose, a significant increase in Gross Domestic Product over the recent months has led to the narrowing of the general government debt to GDP ratio.

For more, check out our politics section.

Thursday, 21 October 2021

Croatia Reports Consolidated General Government Budget Deficit of HRK 27.85 bn

ZAGREB, 21 Oct 2021 - Croatia ran a consolidated general government deficit of HRK 27.85 billion in 2020, which was 7.4% of GDP, while the public debt to GDP ratio increased to 87.3%, the National Bureau of Statistics (DZS) reported on Thursday. 

By comparison, the general government budget ran a surplus of HRK 1.2 billion or 0.3% of GDP in 2019, of HRK 864 million or 0.2% of GDP in 2018, and of HRK 2.8 billion or 0.8% of GDP in 2017.

Last year's deficit was mainly due to the impact of the COVID-19 pandemic on economic activity and because of state aid to the economy.

The consolidated general government debt reached HRK 330.23 billion in 2020, or 87.3% of GDP, ending the multi-year trend of decline.

By comparison, the consolidated public debt was HRK 293.2 billion or 71.1% of GDP in 2019, HRK 286.6 billion or 73.3% of GDP in 2018, and HRK 285.4 billion or 76.7% of GDP in 2017. 

Deficit growth is driven by the economic fallout of the COVID-19 pandemic

The 2020 deficit was largely influenced by the budget balance deficit, which amounted to HRK 21.98 billion or 5.8% of GDP, increasing by HRK 22 billion from the previous year.

The DZS said that the high deficit was the result of a decline in economic activity caused by the COVID-19 pandemic, which had a considerable impact on the fall in tax revenues and social contributions. On the other hand, the government took long-term measures on the expenditure side of the budget to protect jobs and finance the costs of healthcare.

In 2020, taxes on production and imports totaled HRK 70.7 billion, down by 13% compared with 2019, while current taxes on income and wealth amounted to HRK 24.7 billion, a decrease of 7.4% compared with the previous year. Revenues from net social contributions fell by 4.8% to HRK 45.07 billion.

The 2020 deficit was also generated by the poor financial result of extrabudgetary beneficiaries and public companies as well as by the increase in subsidies and welfare and employment allowances.

Last year, interest expenses totaled HRK 7.4 billion, down by 17.5% compared with 2019, when they amounted to HRK 8.97 billion.

On the other hand, investment increased by 19.3% to HRK 21.3 billion. However, capital transfer expenses reached HRK 942 million, which contributed to the deficit growth.

The primary general government deficit, which shows the difference between revenues and expenditures without interest expenses, was HRK 20.45 billion or 5.4% of GDP, compared with the primary general government surplus of HRK 10.17 billion in 2019.

The government debt to GDP ratio up by 16.2 pp

In 2020, the general government debt increased by HRK 37 billion or 12.6% from 2019, of which HRK 33 billion was generated by net borrowing and the rest by the depreciation of the kuna-euro exchange rate.

The trend of the decreasing Maastricht debt to GDP ratio, which began in 2013, was suddenly reversed by the COVID-19 crisis. In 2020, the general government debt to GDP ratio rose by 16.2 percentage points from 2019 to 87.3%, as a result of the government's increased need for borrowing and the GDP decline caused by the drop in economic activity.

The DZS submits a report on the budget deficit and general government debt to the European Commission twice a year, in April and October. Based on such reports, the Commission decides whether EU member states meet the Maastricht criteria, namely that their general government deficit to GDP ratio is below 3% and that general government consolidated debt is below 60% of GDP.

The Croatian parliament amended the 2021 budget in June, projecting growth of 5.2%, a consolidated general government deficit of 3.8% of GDP (HRK 15.3 billion), and a public debt to GDP ratio of 86.6%.

(€1 = HRK 7.504808)

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

Friday, 26 February 2021

Opposition: Record GDP Fall Due to Lack of Adequate Measures to Help Entrepreneurs

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.

Friday, 26 February 2021

Croatia's GDP Contracts by Record 8.4% in 2020

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.

Thursday, 11 February 2021

EC Expects Croatia's Economy to Rebound by 5.3% in 2021, 4.6% in 2022

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%.

Sunday, 29 November 2020

Croatian GDP Fall in Third Quarter Smaller, Still in Double Digits

The Croatian GDP fall in the third quarter of an unprecedented and extremely tumultuous year dominated by a global pandemic and enormous economic downturn has been less than previously expected, but it unfortunately remains in double digits.

As Poslovni Dnevnik/Jadranka Dozan writes, after the second quarter of Croatian economic activity under the harmful influence of lockdown introduced to prevent the spread of the new coronavirus recorded a record 15.5 percent decline when compared to the same quarter last year, in the third quarter, the decline was mitigated but remained double-digits. This doesn't come as much of a shock to anyone.

According to the first estimate of the Central Bureau of Statistics, during the three summer months, the Croatian GDP fall stood at 10 percent on an annual basis, while compared to the second quarter of this year, according to seasonal adjustments, economic activity increased by 6.9 percent.

When observed according to the components of Croatia's GDP, the decline on an annual basis (i) in the third quarter was recorded by almost all major categories, with government consumption standing out as an exception.

Personal consumption, on the other hand, decreased by 7.5 percent, and as its share in domestic GDP is by far the largest and the contribution of this component to GDP growth / decline is usually crucial. However, the largest decrease in the quarter, which in Croatia is mostly marked by tourism, was expected to be achieved in exports and imports, and primarily in services. Exports of services fell by a concerning 45 percent (from -3% in goods, total exports weakened by 32.3 percent), while on the other hand, imports of services sank an equally worrying 33 percent when compared to the third quarter of last year, including goods (-9, 9%), with total imports falling 14.1 percent.

The so-called Gross fixed capital formation fell to 3 percent in the third quarter after falling by almost 15 percent in the second quarter.

Regarding the first estimate of quarterly GDP for the period July-September, the CBS points out that the circumstances related to the ongoing coronavirus pandemic "reflected the availability and reliability of data and information commonly used to estimate quarterly GDP."

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Monday, 23 November 2020

Croatian GDP Drop Expected to be Significant Within EU Parameters

As Novac/Marina Klepo writes on the 23rd of November, 2020, after falling 15.1 percent in the second quarter, seven Hina analysts predict that the Croatian GDP will sink slightly less in the summer quarter, averaging 10.4 percent. Their estimates range from 9.5 to 11 percent, and if they materialise, despite a better-than-expected tourist season, Croatia will find it extremely difficult indeed to avoid one of the biggest declines among all EU countries.

According to the first Eurostat data for 21 countries, the average decline across the EU in the third quarter was 4.3 percent, and except for the United Kingdom with a deficit of 9.6 percent, the Spanish economy was most heavily affected with a decline of 8.7 percent, while in In Italy it stood at 4.7 percent.

Tourist spending

As one Hina analyst explained, with the easing of anti-epidemic measures during the summer months, most activities began to recover and the first high-frequency indicators confirmed growth in the third quarter compared to the March-June period, but a relatively high annual Croatian GDP decline is inevitable.

CBS datas show that retail trade turnover fell by 7.6 percent in the third quarter when compared to the same period last year, among other things due to significantly lower tourist spending. At the same time, industrial production fell by 1.3 percent, the value of merchandise exports in the first nine months of 2020 was 4.8 percent lower than it was during the very same period last year, and imports fell by an alarming 10.1 percent. Finally, government spending remains the only component of Croatian GDP that mitigated these utterly negative trends.

The CNB estimates that the ''real'' Croatian GDP in the first nine months of this year was 8.3 percent lower than it was back during the same period last year. Given the rapidly deteriorating epidemiological situation, expectations for the fourth quarter have also deteriorated alongside it.

Economic analysts also expect that Croatian GDP will continue to decline very sharply indeed because of, among other things. lower amounts of disposable income, lower festive spending and a further decline in exports. According to their expectations, the decline this year will stand at around 9.2 percent, similar to the EC's forecasts, which are at 9.6 percent, while the Croatian Government and the CNB believe that it will amount to 8 percent.

Next year, however, the government and the CNB are currently convinced that the domestic economy will grow by 5 percent, and the European Commission believes that its growth will stand at a decent 5.7 percent. The latest EBRD forecasts, on the other hand, claim that there will be slightly more modest growth in 2021, of only 3.5 percent. In addition, they point out that negative risks prevail, especially those related to the spread of the novel coronavirus, SARS-CoV-2. The EBRD has since reiterated its position that Croatia needs structural reforms in order to properly increase the competitiveness of the economy, and in addition to those already undertaken, the improvement of the quality of Croatia's typically horrendous institutions and governance is considered to be particularly important.

The business environment

In addition, as they point out in the latest Transition Report, it is necessary to improve the business environment in Croatia and remove all of the draconian and mostly entirely unnecessary red tape and administration, but also to diversify the economy properly. The current pandemic, according to the EBRD, has shown the danger of relying too much on one or two sectors, and Croatia must now think twice about lying on its tourism laurels.

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