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."

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Thursday, 4 March 2021

Croatia's General Government Debt Reaches €43.7 Billion at the End of November 2020

ZAGREB, 4 March, 2021 - At the November of 2020, Croatia's public debt totalled HRK 327.8 billion, rising by 35.3 billion, or 12.1%, from the end of 2019, and the country's public debt-to-GDP ratio increased by 15.3 percentage points to 88.6%, according to the Croatian National Bank (HNB) data.

Month on month, the public debt increased 0.6% at the end of November 2020.

A strong rise in the public debt in the first eleven months in 2020 is a result of the response to the crisis caused by the global COVID-19 pandemic, which reduced a large number of economic activities and consequently budget revenues while the state stepped in to cover a budget gap, according to assessments made by RBA bank's analysts.

The analysts also expect the reduction of the debt-to GDP ratio in 2021 below 85%, provided that economic recovery forecasts come true in the course of this year.

(€= HRK 7.5)

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.

Thursday, 3 September 2020

HNB Governor Says Introducing Euro on 1 Jan 2023 Feasible

ZAGREB, September 3, 2020 - Croatian National Bank (HNB) governor Boris Vujcic said on Thursday that although the coronavirus pandemic strongly affected Croatia's economy and public finances, the introduction of the euro on 1 January 2023 was feasible.

Speaking at a conference on the Croatian monetary market in Opatija, Vujcic estimated that GDP would drop 10% this year and increase 6% next year.

"We expect the economy to recover quickly," he said, adding that it was important to meet the remaining Maastricht criteria and carry out the reforms Croatia committed to in the application to enter European Exchange Rate Mechanism (ERM II).

Vujcic said a dynamic economic recovery and maintaining fiscal indicators within the reference framework as of next year were crucial for introducing the euro.

The National Plan for replacing the kuna with the euro is being completed so that we are prepared to introduce the euro on the first day of 2023 and this project, done in cooperation with the government, will be presented soon, while adoption and implementation are expected in the autumn, he said.

The National Plan will regulate the practical steps of introducing the euro as well as inform citizens about it, Vujcic said, recalling that polls showed that sceptical citizens mostly feared that their living standards would decline and prices increase.

It is expected that the Council of the EU will establish in July 2022 that Croatia meets all the requirements, he said, adding that Croatia committed to effect by March 2022 additional reforms to strengthen the fight against money laundering, reduce the administrative and financial burden on the economy, improve management in state companies and strengthen the national bankruptcy framework.

Croatia has been meeting all nominal convergence criteria since 2016 but the pandemic crisis will temporarily obstruct the meeting of fiscal criteria, Vujcic said.

The impact of the epidemic on this year's economy is very strong but real GDP is expected to significantly increase in 2021 after a strong contraction this year, he said, adding that inflation and long term interest rates are very low and that such trends are expected to continue.

The governor said the central bank would continue to implement a stable exchange rate policy, keeping the kuna-euro exchange rate close to the central parity during the ERM II period.

Croatia entered ERM II on July 10 and the central parity was set as HRK 7.53450 for one euro, which was the exchange rate on that day.

Vujcic said HNB and Central European Bank analyses confirmed that the exchange rate was neither undervalued nor overvalued.

The criteria for introducing the euro are clear, no more discretionary decision making nor unwritten rules to which we were exposed before entering ERM II. The pace of the process is only up to us. We have to carry out the reforms we committed to after entering ERM II, spend at least two years in ERM II and meet the Maastricht convergence criteria, Vujcic said.


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Tuesday, 1 September 2020

CNB Governor Boris Vujcic: Croatia Will Have Strong Economic Growth in 2021

The CNB Governor Boris Vujcic pointed out that Croatian tax reforms, which will have implications next year, is something that should contribute to increasing personal consumption, ie consumer optimism.

As Poslovni Dnevnik writes on the 1st of September, 2020, the CNB Governor Boris Vujcic was a guest on N1 recently, on which he commented on the decline of Croatia's GDP, he also discussed economic expectations for the country in 2021.

Vujcic said that the decline in GDP of just over 15 percent is in line with trends across the European Union, where the average GDP fell by 14 percent, and everything depended on the intensity of epidemiological measures.

"As for the whole year, we expect that in the third quarter, tourism will be better than what we projected it to be in the baseline scenario. Basically, we expected a drop in tourist revenues of 70 percent, and given the achievements, we can say that we expect at this time that the decline will be between 30 and 50 percent when compared to 2019,'' said Vujcic.

However, the CNB Governor pointed out that this will be influenced by the further development of the epidemiological situation in Croatia and across Europe as a whole, as well as possible additional measures that will be taken, so the uncertainty is still quite high.

As far as tourism is concerned, considering the epidemiological situation and what other countries are doing, Vujcic believes that we have gained the maximum possible. "We can't expect September to contribute significantly to that picture," he added.

Commenting on the possible growth of household consumption, CNB Governor Boris Vujcic said that that is largely influenced by expectations, consumer optimism, and it depends on the situation on the labour market, the state of employment and unemployment and income expectations. "If people feel uncertainty, they're afraid that they might lose their jobs, if they expect or they 'e afraid that their salaries could be reduced, then they're going to spend less than they might otherwise," Vujcic said.

“At the moment, we're in a situation where, given that the quarantine has ended, personal consumption indicators are improving in the third quarter, but they're far from the levels we had in 2019,” he added. He pointed out that tax reform, which will have implications next year, is something that should contribute to increasing personal consumption, ie consumer optimism.

When it comes to economic downturn, the decline in sources of goods and services stands at 40.6 percent, however, merchandise exports fell by only 10 percent, which analysts are very pleased with.

"The Croatian economy is now much stronger and more resilient than it was back in 2010, 2011 or 2012, and this is a consequence of the fact that Croatia joined the European Union in 2013, after which merchandise exports began to grow strongly and after which our economy became more strongly integrated with the economy of the European Union. Due to social distancing and all of the measures that were taken, services are much more sensitive to this situation with the pandemic,'' said Vujcic.

The CNB expects that Croatia will have a strong recovery in 2021, and there is still a lot of uncertainty and uncertainty about how the situation with the ongoing coronavirus pandemic will develop further.

"We can maintain macroeconomic stability without any issues, and fiscal indicators can improve, as far as the trend of public debt-to-GDP ratio is concerned. As for the exchange rate, we're ready to maintain the stability of this exchange rate until entering the Eurozone,'' said Vujcic.

"The CNB provides liquidity, both in kuna and foreign currency, and at the same time we provide favourable financing conditions, favourable interest rates. The exchange rate is stable and interest rates are at their historically lowest levels. Interest rates on housing loans have reached 2.5 percent, which means that they fell during the crisis, and as far as cash loans are concerned, they're at their lowest levels,'' said the CNB Governor Boris Vujcic.

"As far as lending is concerned, we have a situation where banks have given 3.5 billion kuna to companies, and now the demand for loans is declining, and the conditions for lending are becoming stricter, because the risks are growing. The higher the risk, the stricter the conditions will be. Cash loans have fallen, and housing loans continue to grow and have risen about 9 percent this year. In the new cycle of the APN, we can expect housing loans to increase again, while for cash loans we can't expect that,'' he concluded.

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Monday, 24 August 2020

CNB Governor Boris Vujcic Discusses Economy and Unemployment Rate

As Novac writes on the 23rd of August, 2020, the Governor of the Croatian National Bank (CNB/HNB), Boris Vujcic, said as a guest on HTV's Dnevnik that at this moment in time, given the fact that the results from the Croatian tourism sector are better than predicted, a smaller decline in GDP can be expected. He stated that as long as something unforeseen doesn't happen, strong recovery of the Croatian economy is possible next year.

This, he noted, will also depend on other branches of the economy and on what will happen with the ongoing coronavirus pandemic in autumn. Boris Vujcic also announced the strong growth of public debt this year, while it is expected to fall again next year. The CNB estimates that the share of public debt in GDP would increase from 73 to 87 percent of GDP this year.

"Public debt will increase more this year than the total reduction of public debt was from 2014 to last year. We've had a continuous reduction in public debt and will now come to 87, almost 90 percent in one year. It's good that we can see a reduction in public debt next year, because we expect the strong recovery of the economy,'' said Boris Vujcic.

When asked what citizens can expect, Boris Vujcic said that a further drop in interest rates should be expected as we approach entry into the Eurozone. He also supported the claim that interest rates are currently at the historically lowest levels with the fact that those on housing loans have now reached about 2.5 percent, from some 3 percent back in 2019.

Asked about the possible impact of the coronavirus crisis on the banking system, Vujcic said that the economy will fall sharply this year and banks will feel the consequences in terms of reduced revenues, reduced profits, and some will have losses.

''However, the banks are very well capitalised, so they're able to withstand the decline in results this year. And in that sense, savings are safe,'' the governor said.

When asked about estimates of unemployment, he reminded us of the fact that the biggest contraction in Croatia's economic activity was recorded in the second quarter of 2020 and that part of the effects of rising unemployment will be seen in the fourth quarter. However, this growth will not be nearly as strong as it was after the financial crisis of 2008. Boris Vukcic estimates that it will be relatively moderate.

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Tuesday, 21 April 2020

CNB Governor Boris Vujcic: Croatian GDP Dropping Three Percent Every Month

As Poslovni Dnevnik writes on the 21st of April, 2020, Croatian National Bank Governor Boris Vujcic spoke on Dnevnik N1 about moves the Croatian National Bank (CNB/HNB) is making in connection with the ongoing coronavirus crisis. He said that Croatia is currently in an unusual situation, as is the case when part of the economy needs to be shut down.

"Estimates which are now being made roughly estimate that one month of shutting down the economy brings us a three-point drop in GDP. According to the IMF, the GDP drop 3 percent every month,'' Boris Vujcic said, adding that at the moment, the need to finance the budget is adding up to about ten billion kuna a month.

''We're doing a scenario model where we go with three scenarios - optimistic, pessimistic and basic. They're based on the assumptions of how long the economy can function in this restrictive model. The longer that time goes on, the longer Croatia's GDP falls. We don't know how long it will take, so we can't do a single projection. The depth of the recession this year will depend on whether it's six, nine or twelve weeks of the economy having to work in quarantine.

We expect strong economic recovery in 2021, but not one that would allow for the economy to reach the GDP level of 2019 by the time 2022 rolls around. In an optimistic scenario, we can expect to reach that level of GDP at the end of the projection horizon,'' Boris Vujcic said.

Finance Minister Zdravko Maric said Croatia needed between 60 and 75 billion kuna for three months' worth of assistance packages.

''The need for financing can be done partly on the domestic financial market, by banks and other financial participants, the other way of financing is funds and the third part can be done on the foreign market.

The CNB has done several things. At the beginning of the crisis, it ensured the stability of the exchange rate through foreign exchange interventions on the market. The second part of these actions was to provide additional liquidity on the market, and the third part was related to securities, with which we stabilised the Croatian state's bond market.

We're ready to defend that [same] course. The CNB kept the kuna exchange rate stable and will continue to do so until the introduction of the euro happens. Now is the opportunity to see how important it is to have large international reserves,'' the Governor explained.

If Croatia had introduced the euro today, we would have been in a more favourable position, Vujcic added.

"If we were in the Eurozone, we wouldn't have had an issue with maintaining the exchange rate stability, we'd have the monetary policy of the European Central Bank, which prints one of the two major world currencies. We'd have the resources of the European Stability Mechanism, in addition to that of the ECB, where each Eurozone country can obtain two percent of its GDP, which would have meant another billion euros in our case,'' Boris Vujcic said.

"The CNB has changed, adjusting its regulatory framework for banks for a year, which allows banks to be able to allow customers to defer their payments of liabilities for a period of three months to a year. Not every client has the same commitment and not everyone will be equally affected. If a law were written on this issue, it would be difficult to enact it by determining who has a right and who has no right. Some need that for a short period of time, some need it for a long period of time, some don't need any time at all.

At the end of last week, out of 30,000 business owners who had taken out a loan, 9,000 requested a deferral of their obligations. About 30,000 people have asked for a delay in servicing their obligations,'' Boris Vujcic said.

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Monday, 30 March 2020

Boris Vujcic: Croatia Will Spend €17 Billion in Reserves in Event of Escalation

As Poslovni Dnevnik writes on the 30th of March, 2020, the financial markets are in constant turmoil, the level of uncertainty is extremely high, and all this will require very careful management of budget financing, the governor of the Croatian National Bank, Boris Vujcic, said.

''The Croatian National Bank (CNB) has taken a number of measures to maintain exchange rate stability, strengthen the financial system's liquidity and revive the government bond market. The main measures were promptly announced to the general public, with all the aims that were initially sought. In mid-March, we intervened four times on the foreign exchange market totalling €1.6 billion to stabilise it. That's what we've achieved, the exchange rate has now been stabilised. The second objective was to create additional, and partly longer-term, cheap liquidity. On regular and structural operations, we created 4.5 billion kuna of additional, mostly long-term liquidity for banks at a very low interest rate,'' said Boris Vujcic, according to a report from Vecernji list.

''We've placed the funds for banks for five years at an interest rate of 0.25 percent, and short-term loans are at an interest rate of 0.05 percent. Thirdly, since the additional liquidity created by banks didn't reach other financial institutions and threatened to freeze the government securities market, which would adversely affect the financing conditions of all domestic sectors, we intervened in regard to that market as well. The situation was such that when we announced our interventions, even the market for the highest quality German Government securities was under a huge amount of stress. At two auctions, we purchased 4.3 billion kuna in government bonds, which is the first time the CNB has acted in such a manner,'' Boris Vujcic went on to explain.

''Finally, given the need for additional funding from the state due to the package of measures released in the face of the COVID-19 epidemic, we reduced the reserve requirement last week, freeing up an additional 10.5 billion kuna. These amounts cannot be added together because they're different measures. While foreign exchange interventions convert kuna liquidity into foreign currency, the bank financing operation and the redemption of bonds create additional kuna liquidity, and lowering the reserve requirement rate gives banks existing liquidity blocked by central bank monetary measures. However, all of these moves were complementary and were aimed at preserving favourable financing conditions for all bank clients despite the economic downturn and huge disruptions affecting global financial markets, all while maintaining exchange rate stability,'' Vujcic said, adding that government funding would could facilitate the expected increase in private savings that will ultimately require secure investments. On the other hand, financial markets are facing constant upheaval, uncertainty is extremely high, and this will all require very careful management of budget financing, the governor noted.

''We're entering a health crisis from a position of considerable surplus in the current and capital account, in other words, we've got higher exports than imports, and higher capital inflows than capital outflows. We've used this surplus in recent years to repay foreign currencies and strengthen our foreign exchange reserves, which is our first shock absorber in a situation where exports fall. Although funding conditions have tightened for emerging markets, including the Croatian market, borrowing is still possible. We'll only spend more on reserves if the coronavirus crisis escalates. If that does happen, it will be a sign that our foreign exchange reserves have served a purpose and that we've been able to maintain domestic demand. The CNB's gross reserves, even after the foreign exchange interventions that stabilised the exchange rate after the outbreak of the epidemic, are in excess of €17 billion,'' Boris Vujcic assured.

''The foreign exchange assets of banks needs to be added to that, which amount to approximately five and a half billion euros, and they can serve the same purpose as foreign currency reserves. Foreign exchange sold recently are mainly in the foreign exchange assets of banks and therefore haven't disappeared from the country's financial system,'' Boris Vujcic concluded.

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Tuesday, 17 March 2020

CNB Governor Boris Vujcic Explains Croatian Banking System Stability

Just how is the Croatian banking system doing in these tying coronavirus-dominated times?

As Poslovni Dnevnik writes on the 17th of March, 2020, the Croatian National Bank's Governor Boris Vujcic said that since the beginning of last week, there has been some stronger pressure on the kuna exchange rate. He also stated that the CNB has intervened and stabilised the exchange rate and announced that it will continue to work.

According to Vujcic, the Croatian banking system is currently very stable and that, despite the coronavirus epidemic which is rocking the global economy, there is currently no threat to its normal functioning, so residents certainly do not need to withdraw their cash from banks.

''As for the Croatian banking system, it's very well capitalised and very stable and there's no need for residents to start withdrawing their money from banks. At the moment, we don't see any problems that could jeopardise any normal functioning, regardless of what will happen with the virus or the epidemic,'' Vujcic told reporters.

"The kuna exchange rate will remain as stable as it has been for the last quarter of a century," Vujcic assured strongly.

Namely, since the beginning of last week, the CNB has carried out four foreign exchange interventions, through which more than 1.6 billion euros were sold to banks, bringing a total of 12.2 billion kuna out of the Croatian banking system, and yesterday, after two weeks of the weakening of the kuna, it managed to strengthen against the euro.

Vujcic said that the CNB had very high foreign currency reserves, as well as the ability to create liquidity as and when needed.

When asked about the proposals for the postponing of loan repayments and the request of a state guarantee scheme, Vujcic replied that the state guarantees should be discussed with the state, but also said that the Croatian banking system and the population as a whole are currently in an unusual situation thanks to coronavirus.

"It's in everyone's interest to overcome this situation by postponing some claims/loans that exist against those who will not be able to do business in due time due to the epidemic," Vujcic said, adding that despite the current issues, he believes that the economy then has the capacity to overcome it.

He believes that it is reasonable to expect a budget rebalance, as well for the CNB to accordingly adjust its economic growth projection, which it will do when the time comes.

"If the cycle of this epidemic is the same as we've seen in other countries, then we could see an economic recovery in the third quarter, but it depends a lot on the length of that cycle. The sooner it's over, the sooner the recovery will begin,'' Vujcic said.

He expects that the Croatian economy will see some structural changes, such as a likely increase in agricultural production, which he hopes will remain as such even after the coronavirus crisis passes, in the sense that it will increase Croatia's self-sufficiency in this regard.

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Tuesday, 17 December 2019

Croatian National Bank's Boris Vujčić Reveals Expectations for 2020

What does the Croatian National Bank's main man say the Croatian economy can realistically expect in 2020?

As Jadranka Dozan/Poslovni Dnevnik writes on the 17th of December, 2019, if you were to ask Croatian entrepreneurs, finding an adequate workforce is at the top of the list of the most important problems. According to the survey of the central bank, entrepreneurs consider the problem of regulation or bad or complicated regulations to be bigger than finding staff, while that was only their sixth "concern" a mere four years ago.

Labour supply pressures are also one of the main drivers of wage growth. Since back in 2017, they have been showing solid growth in Croatia, especially when one takes into account that the employee benefits with their salary due to tax changes.

At the Croatian National Bank, as part of the economic projections for the current and the coming year, they pointed out that, following the acceleration of wage growth in 2019, next year Croatia can expect further acceleration, with the public sector leading the way, and not the private sector. Croatian National Bank analysts estimate that in the public sector, nominal gross wages will rise by about 4.3 percent this year, and by more than seven percent in 2020, while the private sector expects about 3.7 percent this year, and about 4.5 percent in 2020.

Looking in the proverbial rearview mirror, statistics suggest that Croatian wage recovery is still below expectations, but the Croatian National Bank notes that this may be partly explained by changes in the structure of total employees, because stronger employment growth occurs in fields with relatively lower average wages (in tourism, for example, with 80 percent of the total average).

Overall, on the labour market - and in terms of wages and overall employment - the Croatian National Bank's Governor Boris Vujčić said that positive developments are expected to continue. In recent years, employment has grown on average around two percent, which is relatively modest, given the fact that the employment rate in Croatia is among the lowest in the European Union and certainly represents one of the major structural weaknesses of the country's entire economy.

Compared to continued favourable developments on the labour market, economic growth could reach three percent in real terms this year, with the central bank projecting a slowdown in GDP growth of 2.8 percent in 2020, which is slightly higher than in previous projections (2.7 percent). In general expectations for the Croatian economy next year are slightly better than what was forecasted last autumn.

Despite the woes of the now truly insufferable topic of Brexit, all estimates suggest that its impact on leading EU economies, some of which are Croatia's main foreign trade partners, will be smaller than expected a few months ago, when worrying recession scenarios were predicted for some. According to current forecasts, the Eurozone is expected to grow by 1.2 percent this year, and by an encouraging 1.4 percent in 2020.

In any case, foreign demand should remain solid, so the expectations for the growth of exports of goods and services from the Croatian National Bank in ​​2020 remain good (ranging from 2.8 to 3.3 percent).

The consumer price inflation forecast has also increased. After this year's slowdown to (an expected) 0.8 percent (owing to the reduction in the VAT rate on certain products and falling oil prices), they expect the central bank to accelerate to 1.4 percent next year as a result of an increase in the annual growth rate, the cost of food and the rise in excise taxes. In previous projections, the Croatian National Bank has calculated a slightly lower 1.1 percent when it comes to inflation.

Thanks in particular to growth in services exports, the stronger and better use of EU funds and growth in remittance revenues, the current and capital account surplus will be higher this year than it was last year, but it is realistic to expect that this surplus will be slightly lower once again in 2020.

Relative indicators of foreign indebtedness should also remain positive, which means a decrease from 75.7 percent to 70.6 percent of GDP this year.

In such a macroeconomic environment, the Croatian National Bank intends to continue expanding its monetary policy, supporting the high liquidity of the monetary system while maintaining the nominal exchange rate of the kuna against the euro in a stable way, Vujčić emphasised.

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