Sunday, 22 November 2020

Analysts Say Croatia's GDP Dropped by About 10% in Q3 2020

ZAGREB, November 22, 2020 - Despite the fact that Croatia's economy somewhat recovered from the record decline in the second quarter, thanks to activities after the lockdown, analysts estimate that in the third quarter it also fell at a double digit rate compared to the previous year.

The national statistical office (DZS) will release at the end of next week the first estimate of gross domestic product (GDP) for Q3, and seven analysts who took part in Hina's survey expect a drop in GDP of 10.4% on the year.

Their estimates of the decline range from 9.5% to 11%.

Economy in recession

That will be the second quarter in a row that the economy declines on the year, which means it has entered a recession, but the decline will be milder compared to the record 15.1% drop in the previous quarter.

The record decline in Q2 was a consequence of the coronavirus pandemic and restrictive measures aimed at curbing the spread of the virus, which paralysed economic activity from the second half of March to the end of April.

"When the measures were relaxed in June, and especially during the summer months, most activities already started to recover. First high-frequency indicators confirm that Q3 will see a growth compared with the period from March to June, but a relatively steep decline in GDP on the year is inevitable," one of the analysts said.

Personal consumption continues to decline

The decline is mainly due to weak personal consumption, which is the largest component of GDP. Data from the national statistical office show that retail trade turnover fell by 7.6% in Q3 compared to the same period last year.

"That is mainly a consequence of trends in hospitality services, which didn't manage to compensate for losses caused by the closure of the economy even during the summer months, and tourist spending was markedly lower compared to the previous year," it was said in the survey.

Even though the summer tourist season was slightly better than expected at the start of the coronavirus crisis, the decline in tourist turnover was sharp.

According to the DZS's data, there were 6.6 million tourists in commercial accommodation establishments in the first nine months of 2020, which is a drop of about 63% from the same period last year, while the number of tourist nights dropped by 54% to 39.7 million.

The decline in industrial production also had a negative effect on GDP. In the past quarter, production dropped by 1.3% on the year.

That is a consequence of weak domestic demand, as well as foreign demand, as indicated by the decline in exports since the start of the year.

According to the DZS's data, the value of exports of goods in the first nine months of 2020 totalled about HRK 80 billion, which 4.8% less compared to the same period last year, while imports dropped by 10.1%, to approximately HRK 126 billion.

"High levels of uncertainty and worsening expectations also curbed stronger investment, while government spending is the only GDP component that is mitigating the negative trends on the demand side with its growth," one of the analysts said in Hina's survey.

Second wave of corona crisis

Because of the second wave of coronavirus spreading in Croatia and Europe, analysts also expect an economic decline in Q4 compared to the previous year.

It is expected that holiday spending and tourist activity will weaken due to epidemiological measures.

In addition, a further decline in exports and imports is expected, given the new restrictive measures introduced in most European countries due to the second wave of coronavirus, as is recession in Croatia's largest trading partners, Italy and Germany.

Deep, but brief recession?

Because of all this, a record decline in economy is expected in the entire 2020.

According to Hina's survey, seven analysts on average estimate that in the entire 2020 the economy could decline by 9.2%. Their estimates of the decline range from 8% to 10%.

The estimates of the decline have slightly decreased since three months ago analysts on average expected a drop of 10.5%.

According to one analyst, some of the reasons for that include a somewhat salvaged main tourist season, the resilience of construction (more) and industry (less) to negative trends, reduced gap in trade in goods (goods exports more resilient than imports) and, finally, the government's fiscal impulse through wage subsidies and maintaining household income levels, as well as the moratorium on loan repayment.

Despite being mitigated, this year's economic downturn could be greater than during the 2009 financial crisis, when the GDP dropped by a record 7.4%.

The government itself expects a greater drop in economy than in 2009, so it estimates that the GDP will decline by 8%.

The Croatian National Bank also expects a drop of about 8%, while the European Commission estimates that Croatia's economy will decline by 9.6% this year.

While the drop in GDP in 2020 will likely be deeper than during the global financial crisis, it is expected that this recession will be shorter. Then, the recession lasted for six years, while this time the economy is expected to grow as soon as next year.

Wednesday, 11 November 2020

Euro Adoption to Have Positive Impact, Particularly on Tourism, Says Ministry

ZAGREB, Nov 11, 2020 - Euro adoption in Croatia will generate a significant and permanent benefit for the economy and the positive effects will be particularly reflected in tourism due to the size of that sector and its high share of tourist demand in EU member states, the Ministry of Tourism and Sports said on Wednesday.

"Visitors from countries where the euro is legal tender generate almost 70% of Croatia's total tourism revenue and about 60% of total bed nights come from the euro area. Introducing the euro will also help boost international cooperation, investment and promotional effects on the tourism sector," the ministry said in response to a query from Hina following a meeting of the National Council for Euro Adoption.

The ministry underscored that Croatia is strongly integrated with the euro area through trade, hence introducing the euro in Croatia will generate significant benefits for the economy.

"It is important to observe and estimate how introducing the euro will affect individual sectors in Croatia, primarily tourism which accounts for a significant share of Croatia's GDP and additionally generates a multiplying effect on other economic activities," the ministry said.

It underlined that "available empiric research mostly indicates positive implications for tourism in introducing the common currency."

Research indicates that introducing the euro has positively impacted foreign investments, hence it can be expected that introducing the euro will encourage investors in Croatia, primarily as there will no longer be any uncertainty related to exchange rates and because of greater transparency in doing business, the ministry concluded.

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Saturday, 7 November 2020

Croatian GDP Drop Among Worst in EU, Better Than Summer Predictions

As Novac/Augustin Palokaj writes on the 6th of November, 2020, the Croatian GDP drop should be at around 9.6 percent this year, which is among the largest declines in the EU, as only Spain with a 12.4 percent drop and Italy with 9.9 percent drop will have a larger decline than that.

The good news for Croatia is that mass job losses have been avoided so far, that unemployment growth is much lower than the economic downturn and that unemployment will drop again next year. Public debt in all EU countries is skyrocketing, which is understandable in the circumstances of the biggest crisis to ever hit it. Here in Croatia, public debt will rise to 86.6 percent of GDP this year, but should start falling once again next year. These are the main forecasts for Croatia from the autumn economic forecasts published by the European Commission in Brussels.

Croatia will begin to recover next year when GDP growth is expected to be 5.7 percent, and in 2022 - 3.7 percent.

These are better forecasts for Croatia than those published by the European Commission back in July, in which it forecast a 10.8 percent Croatian GDP drop. However, the Commission now predicts a slightly slower recovery next year, which, according to the latest forecasts, should be 5.7 percent, while earlier forecasts mentioned a possible growth in 2021 of 7.5 percent.

At the level of the entire European Union, GDP should fall by 7.4 percent this year, the least in Lithuania and Ireland with just over 2 percent and the most in Spain by 12.4 percent, Italy 9.9 percent, Croatia 9.6 percent, France 9 , 4 percent and Portugal 9.3 percent.

France and Italy, with a drop in employment of over 10 percent, had the largest impact on the labour market, while here in Croatia, the decline stood at only 1.4 percent. Unemployment in Croatia should be at the level of 7.7 percent this year, which will be at the exact average unemployment rate across the EU. Unemployment in Croatia should fall to 7.5 percent next year, and then fall again below 7 percent in 2022.

This situation in Croatia is, of course, a consequence of the crisis caused by the ongoing coronavirus pandemic, and preventing the collapse of the labour market is the result of multiple government measures. However, since they could dry out, this area could soon become far more sensitive.

However, the Commission predicts that the labour market will gradually recover and that private consumption and public investment will play a major role in economic growth. The reconstruction of Zagreb following the earthquake and the use of funds from the EU Recovery Fund will play a major role in this. Much will also depend on the recovery in the countries that are Croatia's main trading partners.

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Thursday, 22 October 2020

Double-Digit Drop for Croatian GDP as Europe Slides into Recession?

As Novac/Gojko Drljaca writes on the 21st of October, 2020, a new wave of coronavirus cases is seeing Europe slide into a double-dip recession scenario, this is the thesis with which The Financial Times has come out. A number of European governments are tightening their epidemiological measures, and an increase in the number of cases is leading to a drop in consumer optimism. What does this mean for Croatian GDP?

After reducing the number of cases during the summer, which saw the easing up of the epidemiological measures and the recovery of European economies, we're now witnessing the continuation of the scenario which, in the event of an increase in the number of cases, envisages a prolongation of what has become the status quo and even a deepening of the recession.

Although the last session of the Croatian National Bank Council a few days ago estimated that Croatia will end the year with a GDP decline of 8 percent and that its growth of 5.2 percent is expected in 2021, we've since learned that the central bank is already thinking about revising their relatively optimistic estimates.

For the final conclusion, the central bank will wait and see if the Croatian Government will react with stricter epidemiological measures that could affect business activities.

Well-informed people claim that the behaviour of Croatian consumers has already started to change due to the growing number of cases of infection, which is reflected in the decline in traffic in some shopping centres and restaurants. It should be noted that the Croatian National Bank has already concluded that "during the third quarter, at the same time as the epidemiological situation worsened, signs of a slowdown in recovery became visible, with consumer and business expectations in services and industry deteriorating in September."

According to a statement from the Croatian National Bank, the annual inflation rate in August remained in negative territory (-0.1 percent), real activities and the labour market are in a much more unfavourable situation than before the pandemic.

Although we had a good tourist season for the year with the pandemic, tourism will still bring much lower revenues in 2020. The Croatian National Bank is cautious because they consider forecasting during a pandemic to be extremely difficult due to numerous unknowns.

''We're in a recession and it's easily possible that in the event of the continuation of this trend of the epidemic, the recession will continue in the fourth quarter, and possibly in the first quarter of next year. Delaying the start of the recovery would deprive Croatian GDP of 1 to 2 percentage points annually. In that case, the decline for 2020 would amount to the previously expected 10-11 percent instead of 8-9 percent, as expected before the autumn wave,'' said economist Velimir Sonje.

Due to the growing number of cases, the tightening of epidemiological measures has been announced by all major European countries. Germany, France, the United Kingdom, Spain and the Netherlands - all of which recorded strong growth in the number of cases of infection and all took new measures last week.

Smaller European countries facing an increase in the number of cases are behaving identically. The Czech Republic, which has recorded the largest increase in the number of cases, has reached a high level of restrictions. Belgium has announced the closure of cafes and restaurants for four weeks. As of Monday, they are introducing curfews, bans on gatherings and restrictions on the sale of alcohol.

Switzerland has expanded its obligation to wear masks. A nocturnal epidemiological curfew has been introduced in Paris since midnight on Saturday. In Catalonia, bars and restaurants have been closed in and around Barcelona. The Italian authorities are arguing over what to do: part of the government is calling for stronger measures while Conte insists the new rise in cases is not as dangerous as the first, but they will certainly come up with new measures in any case.

In Sweden, the regional authorities are left to advise citizens to reduce their overall mobility and to adhere to social distancing measures.

Fiscal exposure

Senior Allianz economist Katharina Utermohl commented on the surprising growth rate of cases across Europe and stressed that they are already seeing further economic downturn in a number of countries in the fourth quarter.

"A new recession is absolutely possible," Utermohl said. Google’s mobility data in October again points to a significant decline in major European cities. Countries with large service sectors such as France, Spain and Portugal will once again have particularly major problems.

It is very inconvenient that the countries of the European Union have already dramatically increased their fiscal exposure this year due to the global coronavirus pandemic. The European Commission has announced a plan according to which Eurozone members are expected to have an aggregate fiscal deficit of 976 billion euros this year.

This means that national fiscal deficits will be 10 times higher than last year or those projected for this year. Although the European Central Bank's interventions have managed to keep the borrowing costs of the most vulnerable countries (Italy, Greece) very low, the need for new fiscal interventions brings the EU into a completely unexplored territory, which some call "fiscal extravagance".

ECB Governor Christine Lagarde warned over the weekend that fiscal stimulus should continue to be insisted on, regardless of the risks, in order to avoid "labour market hysteria" and prevent a wave of bankruptcy. The IMF also supports this thesis.

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Friday, 28 August 2020

Analysts Expect Record GDP Fall in 2020

ZAGREB, August 28, 2020 - Due to the consequences of the coronacrisis, Croatia's GDP contracted by a record 15.1% in the second quarter of 2020 compared to the same period last year and analysts expect a record fall in GDP for the entire year but note that the fall could be milder in the next two quarters.

The State Bureau of Statistics (DZS) released its initial estimates on Friday according to which GDP in the second quarter fell by 15.1% on the year, falling for the first time since mid-2014.

This is also the greatest fall since 1995 when the DZS started collecting data on GDP. Until now, the highest ever drop in GDP was recorded in Q1 2009, at the start of the global financial crisis.

Six analysts polled by Hina expected GDP to drop on the year by an average 13.9%, with their estimates ranging from 12% to 17%.

In the second half of March already economic activity was partially or completely halted in a bid to curb the spread of the Covid-19 pandemic, and together with exceptionally high uncertainly, this strongly impacted the business and consumer confidence index while leading to high rates of decline in almost all activities, analysts at the Raiffeisenbank Austria (RBA) said in a comment on the latest DZS figures.

Prior to the figures being released RBA analysis expected GDP in 2020 to contract by 8.5%. 

"The latest figures confirm that the fall in 2020 will be significantly greater. The greatest contribution to the fall for the entire year will be the fall in personal consumption due to increased unemployment, reduced employment and decrease in available income whereas investments will decrease significantly or will be deferred under the influence of great uncertainty," RBA analysts said.

 

Saravanja: The worst has passed

The sharp fall in GDP was expected. Drops were recorded in almost all of the most important segments and in double-digit figures at that, except for government expenditure...This year, due to the modest tourism season and lower investments, as a consequence of the fall in consumption, reserves have had a negative impact on GDP, Goran Saravanja of the Imelum consulting company said.

Saravanja expects GDP for the entire year to drop at a higher rate than in 2009, when the economy plunged by 7.4% at the start of the financial crisis.

The better-than-expected tourism season will buffer the fall in the next two quarters. "The worst has passed. We reached the bottom in the second quarter," he added.

The fact that tourist turnover will be significantly lower than for the same period last year will result in an economic decline in the third quarter too.

According to Eurostat data, GDP in the EU fell by 11.7% compared to Q1 and by 14.1% on the year. Croatia's figures are poorer than the European Union average.

As a consequence it is clear that Croatia's economy will dive into a recession, which is defined as a GDP fall for two consecutive quarters.

 

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Friday, 28 August 2020

Croatia's Q2 GDP Contracts by Record High 15%

ZAGREB, August 28, 2020 - Croatia's economy in the second quarter of 2020 contracted by a record high of 15.1% compared to the same period last year, this being its biggest fall since Croatia started collecting data on GDP, caused by the coronavirus crisis.

The State Bureau of Statistics (DZS) released its initial estimates on Friday according to which GDP in the second quarter fell by 15.1% on the year, falling for the first time since mid-2014.

This is also the greatest fall since 1995 when the DZS started collecting data on GDP. Until now, the highest ever drop in GDP was recorded in Q1 2009, at the start of the global financial crisis.

The fall in GDP in Q2 this year is greater than analysts had expected.

Six analysts polled by Hina expected GDP to drop on the year by an average 13.9%, with their estimates ranging from 12% to 17%.

The sharp decline in the economy in the second quarter is the consequence of the coronavirus pandemic and restrictive measures introduced to curb the pandemic, which paralysed commercial activities from mid-March until the end of April.

 

Sharp fall in consumption, investments, exports...

Due to the pandemic a sharp fall was recorded in personal consumption.

Household consumption plunged by 14% in Q2 2020 compared to Q2 2019.

Gross investments in fixed capital contracted by 14.7% year on year.

The export of commodities and services sunk by 40.6%.

The exports of commodities was 10.9% while the export of services plummeted by 67.4%. The import of commodities and services contracted too, by 28.1%, with commodity imports contracting by 25.3% and imports of services by 42.5%.

State spending however increased in Q2 by 0.7% on the year.

 

Figures poorer than EU average

According to seasonally adjusted data, GDP in Q2 fell by 14.9% compared to Q1 and by 15.1% on the year.

These figures are poorer than the European Union average. According to Eurostat data, GDP in the EU fell by 11.7% compared to Q1 and by 14.1% on the year.

DZS said that due to the circumstances related to the coronavirus crisis, some data may not be precise.

"Difficulties in gauging economic growth, particularly in service activities, might result in a potentially greater revision of GDP figures for the quarter," DZS said.

 

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Wednesday, 26 August 2020

FinMin: Q2 GDP Drop Expected To Be Larger Than During Financial Crisis

ZAGREB, Aug 26, 2020 - Finance Minister Zdravko Maric said on Wednesday the GDP drop in this year's second quarter was expected to be larger than the largest drop during the global financial crisis.

The national statistical office is expected to issue a report on GDP in Q2 on Friday.

Responding to questions from the press, Maric said the government would present new forecasts for the whole year in the first two weeks of September.

The largest GDP drop to date, of 8.8%, was recorded in Q1 2009, at the start of the global financial crisis.

Six analysts polled by Hina expect GDP to drop 13.9% year on year. This will be the first drop since mid-2014 and the largest since 2000.

Maric said everyone realized how much the state-supported the economy this year via job retention measures, but added that this could not be done indefinitely.

New programs are opening up, such as the EU's SURE program, from which Croatia is expected to receive €1 billion in favorable loans which will most likely be used to finance a shorter working week.

Maric said Croatia fared even better with the Next Generation EU instrument, the coronavirus recovery plan in which Croatia will have €9.4 billion at its disposal. He said the big challenge now was to draw the highest amount possible as quickly and as effectively as possible.

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Sunday, 23 August 2020

GDP Expected to Drop by More Than 12 Percent in Q2

ZAGREB, Aug 23, 2020 - The national statistical office (DZS) will publish a report on Croatia's Gross Domestic Product next week, and analysts are agreed the report will show that the country's economy in Q2 has experienced a record decline due to the coronavirus crisis.

Six analysts interviewed by Hina expect the GDP decline to be around 13.9% on the year, with their estimates ranging from 12% to 17%.

This will be the first time since mid-2014 GDP has decreased and at the highest rate since 2000, when the DZS started keeping record of these statistics.

So far the biggest GDP decline, of 8.8%, was reported in Q1 2009, at the start of the global financial crisis.

The lockdown due to the coronavirus epidemic in Q2 caused a record drop in personal consumption, the most important component of GDP.

DZS data show that retail trade in Q2 sank by around 13% compared to the same period of last year.

Statistics also show that commodity exports dropped by 13.5% while imports dropped by 22.8%, one of the interviewed analysts said.

Industrial production went down as well, by 8.4% from Q2 2019.

All components of GDP saw a decline except for government spending, an analyst said.

This year has seen a lack of the positive impact of tourism on the economy due to restrictions on movement in most countries.

In the first six months, there were 1.5 million tourist arrivals in commercial accommodation facilities and 5.2 million overnight stays, a 77% drop from the same period of last year.

But while tourism is not of crucial importance for consumption and GDP trends in the first six months, it is crucial in Q3 because of the summer tourist season.

So far the tourist season has been much better than expected, but expectations were very modest, at 30% of last year's tourist trade.

It is a fact that tourist trade will be much lower than in the same period last year, therefore an economic decline in Q3 is expected, the more so as a further decline in commodity exports and imports is expected given the recession in Croatia's most important trade partners, Italy and Germany.

 

economy-4964514_1280.png

Source: Pixabay

 

Deep but short recession?

The economic decline in the second half of the year will be milder than in Q2 due to the relaxation of restrictions and normalisation of economic activity, however, a more significant decline is expected for the entire year than at the time of the financial crisis.

The six analysts estimate that economic activity in 2020 could go down by 10.5%, with their estimates ranging from 8.5% to 12.5%.

In 2009, at the start of the financial crisis, the economy sank by what so far has been a record 7.4%.

The government, too, expects the economic decline to be deeper than in 2009, estimating that GDP will go down by 9.4%, while the Croatian National Bank expects a decline of 9.7%. The European Commission predicts that Croatia's economic activity will drop by 10.8% this year.

While the economic decline this year will probably be deeper than during the global financial crisis, the recession is expected to be shorter. The recession caused by the global financial crisis lasted six years while this time the economy is expected to recover already in 2021.

 

 

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Sunday, 7 June 2020

Fitch Reaffirms Croatian Credit Rating, More Optimistic Than Government

As Novac writes on the 6th of June, 2020, Fitch has reaffirmed the long-term Croatian credit rating of 'BBB-' with a stable outlook.

"The stable outlook reflects confidence in the government that medium-term fiscal stability will be maintained while short-term measures are taken for economic recovery in regard to the effects of the coronavirus epidemic, as well as the continuation of the gradual euro changeover process," Fitch said.

Fitch forecasts a decline in Croatia's GDP of 8.4 percent in 2020, which is more optimistic than the government's own estimate (which stood at a concerning 9.4 percent), primarily due to the major consequences of the ongoing coronavirus pandemic on tourism, Croatia's strongest economic branch. The new forecast is that Croatian tourism will fall by 70 percent (compared to 50 percent, as was previously assumed).

"Recent economic data points to a dramatic deterioration in economic activity (GDP fell 1.4 percent in the first quarter, while retail sales fell a record 22 percent in April and unemployment jumped to 9.4 percent). Sentiment indicators point to recovery in May, in line with mitigation of the previously stringent anti-epidemic measures put in place to try to slow down the coronavirus infection rate. Other risks will remain as they are in the short and medium term, including the extent and length of the pandemic, recovery in external demand, the potential impact of suspension measures and adverse demographics, Fitch explains.

As for Croatia's desire to join the Eurozone, Fitch writes that Croatia is close to completing the requirements for simultaneous entry into ERMII, a sort of proverbial waiting room countries enter into before adopting the euro as its official currently, as well as the Banking Union.

"In May, the government approved a law reducing non-tax and parafiscal costs, meeting all structural commitments agreed with their European partners. The ECB also conducted its comprehensive assessment and the results will be published in June. If the ECB's results are positive, Croatia is likely to seek entry into the ERMII/Banking Union in the third quarter of 2020,'' they state.

For more on the Croatian credit rating and economy, click here.

Tuesday, 26 May 2020

Croatia's Foreign Debt Down In January, But Is Going To Rise In 2020

ZAGREB, May 26, 2020 - Croatia's foreign debt totaled HRK 41.1 billion in January, falling by 6.5% compared to January 2019, however RBA analysts predict a rise in the debt throughout 2020 due to the corona crisis.

Croatia's gross foreign debt of 41.1 billion at the end of January 2020 rose by 0.6% from December 2019 when it amounted HRK 40.9 billion, however, it contracted by 2.8 billion euros or by 6.5% on the year, according to the figures recently published by the Croatian National Bank (HNB).

However, considering the new circumstances in connection with the coronavirus pandemic that caused a lockdown globally as well as in the Croatian economy, RBA analysts expect the deterioration in Croatia's external vulnerability.

The analysts said that a positive streak in the current account since 2013 would be likely snapped, and the country's gross foreign debt would rise both in the real and nominal terms.

"Recovery and relaunching the economic activity, which will require high amounts of funding, will lead to a rise in the borrowing abroad by all key sectors," said the analysts of the Raiffeisenbank Austria (RBA).

The recall that the government has recently planned more borrowing both on the local and foreign markets.

As a result of growing debt and the expected sharp economic downturn, Croatia's gross foreign debt to GDP ratio is likely to increase, too.

At the end of 2019, Croatia's gross foreign debt to GDP ratio was 75.7%.

(€1 = HRK 7.579243

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