Friday, 30 September 2022

ERBD's Prognosis for Croatian GDP Growth Considerably Improved

September the 30th, 2022 - The European Bank for Reconstruction and Development (EBRD) has given its improved prognosis for Croatian GDP growth.

The global coronavirus pandemic which halted tourism and created unprecedented circumstances across the board had tremendously negative effects on the domestic economy. Tourism, being the strongest economic branch this country has, making up 20 percent of Croatian GDP, took a hit like no other as planes stopped arriving. Things, however, seem to be on the up despite ongoing spiralling inflation and the horrific situation still unfolding in Ukraine following Russian invasion earlier this year.

As Poslovni Dnevnik writes, the European Bank for Reconstruction and Development (EBRD) announced in its September 2022 report on regional economic forecasts that Croatian GDP growth this year will amount to 6.5 percent, while next year it will slow down to 2 percent.

Compared to the report which was issued back in May this year, this is a doubling of Croatian GDP growth for this year, while the forecast for 2023 has worsened, given that the EBRD expected an increase of 3.5 percent.

In the 38 countries in which the EBRD operates, economic growth will amount to 3 percent next year. This is a significant reduction when it comes to initial expectations, considering the fact that back in the May report, economic growth of 4.7 percent was expected.

As for this year, the bank expects Croatia's immediate region to grow economically by 2.3 percent, which is a significant improvement. Back in May, the EBRD expected a growth of a mere 1.2 percent.

For more, make sure to check out our dedicated politics section.

Saturday, 27 August 2022

Croatian GDP Growth in Second Quarter Exceeds EU Average

August the 27th, 2022 - Croatian GDP growth has been considerably higher than it has been in the rest of the European Union, despite the ongoing troubles being faced by spiralling inflation and pressure on the government to step in with measures to protect some of the most vulnerable in society.

As Poslovni Dnevnik writes, Prime Minister Andrej Plenkovic recently visited Rijeka where he commented on the news about the 7.7 percent Croatian GDP growth in the second quarter of this year, saying that it represents the second highest growth in the European Union (EU) and is almost double the average at the level of the bloc.

Plenkovic said that for now, only neighbouring Slovenia has enjoyed a higher GDP growth in the second quarter in the entire 27 member bloc.

''The average growth in the second quarter at the European Union level stands at four percent. So, that means that Croatian GDP growth is almost a hundred percent higher, almost doubling that. We can be very satisfied with that indeed,'' he said, highlighting the extra burden the economic crisis we're all dealing with at this moment in time.

He added that considering the "fantastic" tourist season Croatia has enjoyed so far, with numbers matching those of the pre-pandemic, record year of 2019 in multiple sectors, everything indicates that the third quarter will also be very good for the country.

''This means that Croatian GDP growth this year will be higher not only as we predicted it, but also how others predicted it. This includes international institutions, agencies, organisations, and so on, so we can look forward to that and it will, of course, help us in solving the economic crisis that we're all facing,'' Plenkovic concluded, as reported by HRT.

For more on Croatian GDP growth and the Croatian Government, make sure to check out our dedicated politics section.

Wednesday, 13 July 2022

Central Bank Expects GDP to Increase 2.5%, Inflation to Drop to 4.6% in 2023

ZAGREB, 13 July 2022 - Real GDP growth could be 5.5% this year and 2.5% in 2023, while inflation could slow down from this year's 9.4% to 4.6% in 2023, the Croatian National Bank (HNB) said on Wednesday.

According to the HNB's summary of macroeconomic trends and estimates, the economic repercussions of the Russian invasion of Ukraine, the continued rise in energy and raw material prices, and the disruption of global supply chains have not seriously affected Croatia's economic growth outlook.

However, unfavourable global circumstances and pronounced inflationary pressures could have a bigger impact on domestic economic trends in 2023, when real domestic activity growth is expected to slow down to 2.5%.

The risks remain pronounced in the projected period 2022-23, with the prevalence of risks that could have a negative impact on economic growth, such as a gas embargo, food and energy price hikes, tighter financing conditions than expected, and a deterioration of the COVID situation.

HNB governor Boris Vujčić told the press that growth in Q2 this year was expected to be stronger than in Q1, when it was 7%, the tourism season was expected to make a very strong contribution in Q3, and "solid growth" was expected in Q4.

He said Q4 was much more uncertain and that for the most part, it depended on developments on the energy market, and whether there would be a gas embargo for Europe, which would significantly change the economic outlook for Q4 and 2023.

Vujčić said a recession was possible next year, mainly due to a stoppage in gas deliveries to Europe. The recession could first occur in Croatia's main trade partners, Germany and Italy, and then spill over to Croatia, he added.

As for this year's tourism season, he said arrivals were almost the same as in 2019, while accommodation and hospitality prices increased by 20 to 30%, which would point to a record tourism season financially.

Inflation in June surpasses 11%

This year's inflation of consumer prices could accelerate to 9.4%, first and foremost as a result of considerably higher global energy and raw material prices, the HNB says. On the domestic market, energy and food prices continue to increase the most, but the increase in prices of other goods and services is gradually accelerating, too.

Vujčić said inflation was expected to increase to over 11% in June, that during the summer it should be at 11% or 12%, while it was expected to start slowing down at the end of this year and especially at the start of 2023.

The growth of the main inflation sub-components is expected to slow down in 2023 and total inflation as well, to 4.6%. However, this forecast hinges on the stabilisation and, later this year, the gradual decrease in energy and raw material prices on the global market, according to the HNB.

Inflation projections for this year and the next are dominated by risks that could increase it further, including higher energy and raw material prices and a more pronounced salary growth.

Vujčić said the fight against inflation envisaged higher interest rates and that the European Central Bank announced that this could begin this month already. "I expect this to continue in the autumn."

The goal is for HNB and ECB interest rates to be the same as of 1 January 2023 and Croatia's accession to the euro area, he said.

Mandatory reserves to be reduced to 1%, no more foreign currency claim obligation

The HNB Council decided today to reduce banks' rate for calculating mandatory reserves from 9% to 5% this August and from 5% to 1% in December, which is the mandatory reserve rate in the euro area, Vujčić said.

He also decided that the minimum amount of foreign currency claims be reduced from 17% to 8.5% in August and abolished in December.

The effect of the first measure will be the release of HRK 34.2 billion in mandatory reserves, while the second will allow banks to release or differently dispose of €5 billion, Vujčić said.

Historically low interest rates

He said today's decisions would also affect interest rates by making financing cheaper for banks, so they would have fewer reasons to raise them, notably on new loans. They can reduce them further, depending on their business policy, he added. "But we'll see where we are at the start of next year."

Vujčić said interest rates in Croatia were historically low, while those in EU countries outside the euro area were considerably higher, twice as high for housing loans.

Decrease in real and increase in nominal pay

This year, employment is expected to continue to grow and unemployment to fall, with an increase in nominal and a decrease in real pay.

Vujčić said the current situation on the labour market was unusual, given that the private sector was recording a strong rise in nominal pay, about 10%, mainly due to the difficulty to find qualified labour, while wage increases in the public sector were slower.

Looking at the two sectors together, the growth in wages is somewhat lower than that of inflation, and this year real pay is expected to drop 1.5-2%, Vujčić said, adding that wage increases were expected to be at the level of inflation growth only in the private sector.

Euro area and Schengen additional incentive to foreigners to buy real estate

Speaking of the real estate market, Vujčić said property prices in Q1 were 13.5% higher year on the year and that the increase was also due to very low interest rates on savings, which are even negative in neighbouring countries, prompting foreigners to buy due to the higher yield.

The increase in property prices is also due to the government's subsidised housing scheme as well as the acceleration of inflation.

Vujčić said Croatia's accession to the euro and Schengen areas would be an additional incentive to buy real estate. On the other hand, if the rise in ECB interest rates also affects those on deposits, this rise should also reduce the incentive to buy real estate, but this can't happen overnight, he added.

Market activity could slow down due to the expected tightening of financing conditions and unfavouable income trends.

For more, check out our politics section.

Tuesday, 5 July 2022

Croatian General Government Debt Reaches 342.5 Billion Kuna

July the 5th, 2022 - Croatian general government debt now stands at a whopping 342.5 billion kuna, according to what was calculated back during the month of March this year.

As Poslovni Dnevnik writes, the Croatian general government debt calculated back at the end of March this year amounted to 342.5 billion kuna, which is 1.1 billion kuna or 0.3 percent more than just one year earlier, according to the latest data from the Croatian National Bank (CNB/HNB).

The annual increase in Croatian general government debt was caused by an increase in domestic debt by 4.1 billion kuna or 1.9 percent and a decrease in foreign debt by 2.5 billion kuna or 2 percent. Looking at these enormous figures a monthly basis, the Croatian general government debt actually decreased by 1.7 billion kuna.

Observed as a ratio in annual GDP, the total debt at the end of March 2022 amounted to 77.3 percent of GDP, which is 12.8 percentage points less than a year earlier, when total debt reached 90.1 percent of the country's GDP, they stated from the Croatian National Bank.

Otherwise, the Croatian Government expects that by the end of this year, the share of public debt in GDP should amount to 76.2 percent of GDP, or 3.6 percentage points less than back in 2021.

As a reminder, the debt of the general government back at the end of February this year amounted to 344.2 billion kuna, which is 13.7 billion kuna or 4.1 percent more than a year earlier.

Analysts previously estimated that this year, they expect the Croatian general government debt to continue to grow in absolute terms due to growing financing needs.

For more, make sure to check out our dedicated politics section.

Friday, 1 July 2022

Lukewarm Expectations for Croatian Economy as Inflation Continues to Bite

July the 1st, 2022 - There are fairly lukewarm expectations for the Croatian economy, with inflation continuing and as such expectations are stagnating.

As Poslovni Dnevnik writes, this month, expectations for the Croatian economy have been rather rapidly stagnating. On the one hand, there is pessimism in the retail sector due to the overall reduced purchasing power of consumers, and on the other hand, there are also improved expectations in both the industry and the service sector(s).

The European Commission's survey and the Economic Climate Index (ESI) in the Republic of Croatia rose by 0.2 points in June compared to the previous month of May, to 109.4 points.

The analysis shows that the mood in the retail sector has deteriorated sharply, the index for that sector sank by as much as 4.9 points, reflecting fears that high living costs and inflation could force citizens to save more and more. Consumer expectations, the index of which fell by 2.3 points, don't really give a great deal of hope either.

On the other hand, the leaders of the industry and the service sector(s) showed increased optimism when it comes to the Croatian economy and expectations surrounding it at the beginning of the summer, and in their case the index grew by 1.5 and 1.3 points, respectively. The mood in the construction sector also improved slightly, with the index growing by 0.9 points.

Company leaders expect to hire more during the height of this summer season, and the EEI index rose to 7.2 points. They also estimate that business uncertainty is significantly more pronounced than it was back in May, which was reflected in the growth of the EUI index by 1.3 points.

Managers across the EU and the Eurozone expect weaker business than back during in May, which was reflected in a decline in the economic climate index by 1.7 and one point, respectively. Among the leading European Union economies, the economic climate index in the Netherlands fell the most, by 3.6 points.

They are followed by Germany and Spain with a drop in ESI by 1.9 points and Poland where it decreased by 1.5 compared to May, the report shows. Managers in both areas estimate that they will employ less in the coming months, and warn of increased business uncertainty.

For more, make sure to check out our dedicated business section.

Friday, 22 April 2022

Croatian Economic Analyst Damir Novotny Talks Inflation Expectations

April the 22nd, 2022 - Croatian economic analyst Damir Novotny has spoken about the ongoing situation with inflation across the country, the International Monetary Fund's most recent predictions for Croatian GDP growth (or lack of), and when we might expect the very height of this current inflation wave to peak.

As Poslovni Dnevnik writes, we recently wrote about the IMF predicting Croatia's GDP growth to stand at 2.7 percent this year, which is significantly  less than was predicted back in the autumn forecasts.

Croatian economic analyst Damir Novotny explained to HRT that the Croatian economy did grow last year, making up for the loss of 8 and something percent. He noted that economists see these changes in GDP as an aggregate state, but when it comes to how it will affect a certain strata of society, only time will tell.

“Some will lose, some will gain because, when it comes to inflation, there's a redistribution of economic resources and it's a special tax that isn't declared, but it is still a tax. That said, inflation is still relatively low and we can't say that hyperinflation is a current threat to Croatia, although there is always a danger,'' Croatian economic analyst Damir Novotny said.

"Lower growth forecasts and what is even more important - the uncertainty that this time brings means less demand for loans, and loans are still the most important source of income for banks," said Zdenko Adrovic.

Croatia as a Eurozone member

He also noted that Croatian banks will unfortunately worsen their lending conditions because they are threatened by the growth of bad or non-performing loans, so banks need to insure themselves in some way. As for interest rates, the director of the Croatian Association of Banks, Zdenko Adrovic, expects growth, but not in a sudden sense.

Economic analyst Hrvoje Stojic believes that inflation will reach its maximum in the autumn, especially across the Eurozone, and in this country, this wave will be delayed and will be moved towards the second half of the year.

As for the introduction of the euro in Croatia, it is a political decision more than anything else. Croatian economic analyst Damir Novotny believes that in January 2023, Croatia will be a member of the Eurozone. He also thinks that it will be useful because at this time it would represent a new umbrella that can protect the country from major shocks, so people shouldn't be afraid of that.

For more, check out our lifestyle section.

Thursday, 21 April 2022

IMF Drastically Slashes Croatian GDP Growth Expectations

April the 21st, 2022 - The International Monetary Fund (IMF) has drastically slashed Croatian GDP growth expectations, with the ongoing war in Ukraine following Russian invasion cited as a significant issue.

As Poslovni Dnevnik/Ana Blaskovic writes, the International Monetary Fund (IMF) has more than halved its growth forecast for the domestic economy to 2.7 percent this year due to the situation with the war in Ukraine. In its regular autumn forecasts for October, the IMF expected Croatian GDP growth of 5.8 percent. In 2023, growth should accelerate strongly to 4 percent.

While Croatian GDP growth will slow down, inflation should almost triple, from 2 to 5.9 percent. Next year, however, the International Monetary Fund estimates that price growth should slow down to 2.7 percent, which would almost return to the levels we experienced back in 2021.

In its latest forecast, the unemployment rate has been slightly adjusted to be lower, so the IMF now expects 7.7 percent, down a little from the previous 8 percent. In 2023, unemployment should still fall, down to 7.4 percent. Last year, that rate reached 8.2 percent, 0.2 percentage points lower than autumn's estimates.

The IMF has positive expectations about the current account deficit, which it estimates will halve to 0.4 percent of GDP. Next year, the current account should be in the plus with a 0.3 per cent GDP surplus.

The Republic of Croatia is in the group of emerging European economies, which is forecast to fall by 2.9 percent, after last year's growth forecast of 3.6 percent. In 2023, the IMF forecasts a recovery of 1.3 percent for emerging European economies.

The Fund also predicts a decline in economic activity for the entire Eurozone, which could rise by 2.8 percent this year (instead of 3.9 percent as was expected in January), and in 2023, it will likely slow down to further to 2.3 percent.

The biggest blow will more than likely be experienced by Germany, which will see its GDP grow by only 2.1 percent this year, 1.7 points less than previously expected. Due to the war in Ukraine, inflation across the Eurozone is expected to reach 5.3 percent and then weaken to 2.3 percent in 2023.

For more on Croatian GDP growth, make sure to check out our dedicated lifestyle section.

Wednesday, 9 March 2022

Croatian GDP Growth Among Strongest in EU at End of 2021

March the 9th, 2022 - Croatian GDP growth in the fourth quarter of last year is more than impressive, placing the country among the European Union (EU) member states with the strongest such growth of all.

As Poslovni Dnevnik writes, the Republic of Croatia is among the EU countries with the highest annual GDP growth rate in the fourth quarter of 2021, ranking behind Ireland and Malta and soaring well above the European average, new Eurostat estimates revealed this week.

The EU's seasonally adjusted gross domestic product (GDP) rose 0.4 percent in the fourth quarter of 2021 compared to the previous three months, when it increased 2.2 percent, Eurostat confirmed in its February estimate.

The Eurozone's GDP grew 0.3 percent when compared to the third quarter, when it rose 2.3 percent.

Compared to the same period a year earlier, the seasonally adjusted GDP of the EU as a bloc and the Eurozone increased by 4.8 and 4.6 percent respectively. It rose 4.1 percent in the EU and 3.9 percent in the Eurozone in the previous quarter.

Activity in both the EU and the Eurozone exceeded pre-pandemic levels from back at the end of 2019, by 0.6 and 0.2 percent, respectively, Eurostat determined on the basis of seasonally adjusted data. Throughout 2021, activity in both areas rose 5.3 percent, 0.1 percentage point stronger than Eurostat estimated back in mid-February.

Neighbouring Slovenia is at the helm...

At the annual level, all EU countries form which Eurostat obtained data recorded GDP growth in the fourth quarter of 2021, and the strongest was in neighbouring Slovenia, where it amounted to 10.5 percent.

The Slovenes are followed by Malta and Ireland with a 10 percent increase in activity, and Croatian GDP growth also places it in this group, where it grew by 9.9 percent, after a 15.3 percent jump in the period from July to September. The weakest growth among the countries with Eurostat data was recorded by Slovakia, with 1.2 percent, and Germany is close with a growth rate of a mere 1.8 percent.

Among the countries whose data were available to Eurostat, GDP in Slovenia grew the most on a quarterly basis in the fourth quarter of last year, by 5.3 percent, followed by Malta with 2.3 percent growth and Spain and Hungary, where GDP grew by two percent in both countries.

A decline in activity was recorded in Ireland, by 5.4 percent, in Austria, by 1.5 percent. The same also fell slightly in Germany, by 0.3 percent, and here in Croatia, Latvia and Romania, that fall stood at 0.1 percent. In the third quarter of last year, Croatian GDP growth stood at 1.4 percent on a quarterly basis.

Decreased employment

The number of employees in the EU and the Eurozone increased by 0.5 percent in the last three months of last year compared to the summer quarter, when it increased by 0.9 and one percent, respectively. Compared to the end of 2020, it increased by 2.1 percent in the EU and by 2.2 percent in the Eurozone. Between July and September, it rose 2.1 percent in both areas.

Recovery in Croatia...

Employment in Hungary, Denmark, Malta and Spain accelerated the most on a quarterly basis, ranging from 1.2 to 1.0 percent. Here in Croatia, the number of employees increased by 0.6 percent in the fourth quarter of last year compared to the previous quarter, when it fell by 0.1 percent. On an annual basis, the number of employees in Ireland increased by the most, by 8.4 percent.

When it comes to the growth in the number of employees at the end of last year by 3.6 percent compared to the same period back in 2020, Croatia is equal to Greece, Luxembourg and Malta. In the third quarter, the number of employees in Croatia increased by 1.7 percent on an annual basis. Only Romania saw a 9.1 percent drop in registered employee numbers.

For more, check out our lifestyle section.

Wednesday, 8 December 2021

Croatian Tourism Investments Fall by Over 60%, State Should Step In

December the 8th, 2021 - A decline in tourism, and as such Croatian tourism investments, can more or less explain almost the entire decline in GDP. A massive 8.1% decline back in 2020 was certainly not what anyone needed, or could have ever imagined coul happen after the record year of 2019.

As Poslovni Dnevnik/Marija Crnjak writes, the overall decline of GDP in Croatia back in pandemic-dominated 2020 can be explained by the decline in tourism, the most affected industry that has led to a decline across all related sectors, while at least 4.5-5 percent of total GDP growth in 2021 can be attributed to the subsequent recovery of tourist traffic.

This shows the exceptional importance of tourism for the Croatian economy, but despite a significant increase in tourist traffic this year, the situation remains dramatic as the crisis has caused a sharp drop in Croatian tourism investments and the recovery will not be spontaneous without additional investment incentives from the state.

Analyst Velimir Sonje warned about precisely that, presenting his research on the connection between tourism and the pandemic recently at the Congress of Hoteliers, organised by the Croatian Hotel Employers' Association (UPUHH).

“Croatian tourism investments and its activity is in a sharp decline of 60-66 percent when compared to 2019 and the duration of such a situation threatens to weaken the positive development effects of tourism, such as a proven contribution to alleviating emigration from Croatia. We got the impression that after this season, which was short, but successful, that everything would be fine and that we're finally returning to normal. But a spontaneous recovery won't happen unless there is a strong recovery in investment soon. This requires investment incentives, and investors' expectations are focused on the new Law on Investment Promotion and the implementation of a new regional aid map,'' explained Sonje, whose research is based on the results of a survey among the ten largest hotel companies in the country, with total revenues of 5 billion kuna recorded back in 2019.

"Paradoxically, despite the fact that tourism is crucial for economic recovery, the European Commission has allocated only 5 percent of the total amount from the National Recovery and Resilience Plan to this sector," concluded Sonje.

The Director of the Croatian Tourism Association, Veljko Ostojic, pointed out the four biggest challenges that the hotel business will face in 2022. With the return on investment, after the 2021 season in which Croatia had the best tourism results in the Mediterranean and Europe, the biggest challenge in preparation next year will be the sheer lack of qualified personnel, an issue present in the sector throughout Europe at the moment.

"In Croatia, it isn't only a question of engaging domestic workers, but also a faster and more flexible administration in hiring foreign workers. The second most important issue will be the continuation of investments in quality, without which Croatia will not be competitive in relation to other Mediterranean countries in particular. There will be an important contribution of money for NPOO projects, but also the legislative framework, primarily addressing the issue of tourist land. We're in intensive talks with the Ministry of Construction and State Property and I believe that in the coming weeks we'll be able to find solutions that will enable investments and generate significant revenues to the state budget,'' believes Ostojic.

The fourth important factor will be the unfolding epidemiological situation, which is still a challenge and a trigger for the majority choosing a holiday destination, but Croatia and the sector have done a great job in the last two years, so there are no severe worries. Hoteliers also point out the important challenge that inflation and the situation with supply chains will pose in financial operations.

"It will be a very big challenge that we won't be able to mitigate through rising prices and many will not be left for investment. Without the help of the state, through the Law on Investment Promotion and similar solutions, we cannot expect the recovery of the investment power of the tourism sector,'' warned Popovic.

For more, check out our business section.

Wednesday, 1 December 2021

Croatian Economic Recovery Expectations Becoming More Optimistic

December the 1st, 2021 - Croatian economic recovery expectations are looking a little brighter as we begin to slowly but surely emerge from the global coronavirus pandemic.

As Poslovni Dnevnik/Jadranka Dozan writes, if business leaders were to be asked, Croatian economic recovery expectations in the past month have been somewhat more optimistic than the month before. In contrast, among consumers themselves, the perception seems to be more susceptible to the development of the epidemiological picture of the time, meaning that in the last study their expectations actually decreased.

These are, in short, the main findings for the Republic of Croatia and the domestic economy from the latest report of the European Commission (EC) on the economic climate in the member states of the European Union (EU).

While the economic climate index (ESI) at the EU level last month slightly (by one percentage point) deteriorated when compared to the month of October, in Croatia it rose by slightly less than two percentage points, up to 111.3 points. The most pronounced growth of expectations among the domestic business community was shown by the construction sector (with an index growth of as high as 6.3 points).

Although a solid increase in optimism was recorded among the leaders of industrial companies, and somewhat milder in the trade and service sector, it was the wave of optimism among builders that outweighed the somewhat more pessimistic expectations of consumers.

Namely, among people themselves, reduced Croatian economic expectations were reflected in a drop in the index by 2.7 points. From the business sector for the next period, signals are coming in about the intentions of increased employment, although due to the ongoing pandemic, procurement problems are still likely to remain an issue.

At the level of the entire EU, the decline in consumer sentiment prevailed in the overall Croatian economic expectations, although they also improved slightly in the month of November among the European Union's business people, and employment expectations were also positively intoned.

For more, check out our dedicated politics section.

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