Tuesday, 17 May 2022

Split Confectioner Raises Prices, Admits Croats Won't Afford Them

May the 17th, 2022 - Inflation is continuing to place proverbial vices in the pockets of Croatia's residents, with just about every possible item from fuel to lettuce at the market having seen considerable price hikes. One Split confectioner claims that they're more than aware that locals won't be able to afford their products, but that they ''need to survive somehow''.

The criticism of one Split confectioner has been loud, as their prices are deemed extortionate to the local Croatian pocket. They have been accused of catering only to the typically deeper pockets of foreign visitors, but they have defended themselves and challenged all those who have an issue with the prices to go ahead and try to open a shop of their own, so that they might feel on their own skin how difficult it is.

As Poslovni Dnevnik writes, recently, something as apparently mundane as the prices of ice cream in the very centre of Split was written about rather extensively. Those prices ranged from 10 to a maximum of 15 kuna, which is twice as much as it was seven years ago. Many wrote in their comments that such figures were conditioned by the increasingly challenging and difficult market, higher purchasing costs for ingredients, water and electricity, as well as high rental costs, emphasising that "those in the hospitality industry also need to try and survive".

Slobodna Dalmacija writes that in the meantime, three more confectioneries have opened in the centre of Split, and that one Split confectioner, they recorded the most expensive scoop of ice cream offered so far in the city under Marjan. From 13 kuna for a small portion and 18 kuna for a large portion in a cup with various toppings included.

As for ordinary scoops of ice cream, there's apparently a new record holder in Split as well. This is the Slovenian franchise Aroma, where you will pay 16 kuna for their refreshing pleasure made without any gluten, artificial flavourso or flavour enhancers.

"We're aware that our prices aren't going to be being paid by Croats. But, what can you do, tourists are ready to pay for it,'' one smiling saleswoman explained to the journalists from Slobodna Dalmacija.

It's now certain that the (over) inflated rental prices (from which a mere handful profit, and most citizens of Split simply can't afford, for example, a scoop of ice cream) dictate that you'll now spend almost 50 kuna for three scoops of ice cream, and that if this is a path they really want to go down, those in the catering and hospitality sector, and the likes of this Split confectioner, should settle for a winter period in which business turnover in ice cream parlors is almost non-existent.

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

Monday, 16 May 2022

EC Projects Croatian GDP Growth at 3.4%, Inflation at 6.1%

ZAGREB, 16 May 2022 - This year the Croatian economy is expected to grow by 3.4%, the employment rate should increase by 1.5% and inflation might reach 6.1% due to increases in energy and food prices, the European Commission says in its Spring 2022 Economic Forecast, released on Monday.

"After a strong rebound of the economy in 2021, with a growth rate of 10.2%, GDP growth in 2022 is expected to be more modest but still solid at 3.4% as the direct exposure of the Croatian economy to the effects of Russia’s military aggression against Ukraine is limited," the Commission said in its report.

The Commission revised its growth projection for Croatia from 4.8% predicted in the Winter Forecast, released on 10 February. As for the growth forecast for next year, the Commission retained its previous growth projection of 3.0%.

Croatia's GDP is forecast to grow by 3.4% in 2022, mostly supported by domestic demand and as the labor market is expected to stay dynamic, with employment growing by around 1.5% this year. Inflation is projected to accelerate to 6.1% in 2022, driven by rising energy and food prices, before decreasing to 2.8% in 2023.

Before the Russian invasion of Ukraine, the Commission had forecast a long and strong recovery, but the war brought about new challenges at a time when the EU economy had recovered from the consequences of the COVID-19 pandemic. That's why the Commission revised its growth forecasts for EU economies and revised up its forecasts for inflation.

The Commission says that the fiscal package adopted by the Croatian government, including direct transfers to households and SMEs and cuts in indirect taxes, should cushion the effects of rising prices on disposable incomes and corporate profits. Despite this further fiscal support to the economy, the sustainability of the key fiscal figures is expected to continue improving, with the general government deficit narrowing toward 1.8% of GDP and public debt to around 73% of GDP by 2023. In 2023 GDP is expected to grow by 3.0%.

Private consumption is forecast to grow by 2.4%, lower than previously expected, due to rising consumer prices and uncertainty, which increases precautionary savings. On the other hand, the implementation of the National Recovery and Resilience Plan (RRP), and the acceleration of post-earthquake reconstruction should push investment growth to 6.5%, despite the drag induced by the rising costs of materials, supply bottlenecks, and increased uncertainty.

Government consumption should retain its positive contribution to economic growth, with a growth rate of around 2.5%.

Exports of goods are expected to be affected by weaker demand in main trading partners, but the growth rate should remain solid, at around 5%. The growth of exports of services should be mostly driven by tourist activity, which is expected to converge towards pre-crisis levels.

Imports are projected to increase in line with final demand.

"The balance of risks to the forecast is tilted to the downside, with key negative risks stemming from the rising global uncertainties and commodity price shocks, which could affect both domestic and external demand. On the upside, the envisaged euro adoption in 2023 could benefit investments and trade, while RRP-related investments and reforms, if swiftly implemented, could more rapidly increase the growth potential of the economy," the Commission said.

After peaking at 7.6% in 2021, the unemployment rate is projected to gradually decline below 6.5% by the end of 2023.

For more, check out our politics section.

Friday, 13 May 2022

Croatian Inflation Results in Continuing Soaring Prices on Markets

May the 13th, 2022 - Croatian inflation is continuing to force prices up for just about everything. Croatian marketplaces, where many people still love to buy fresh produce, are now raising their prices, making even basic salad more expensive.

As Poslovni Dnevnik writes, fruit and vegetable prices on Croatian markets across the country are skyrocketing. The fact these are astronomically high prices compared to the same period last year has been confirmed by the fact that a kilogram of chard or spinach is now costing 30 to 50 kuna, as reported by Slobodna Dalmacija.

Right behind chard come both coloured and white beans that are sold at a price of 30 to 40 kuna and the absolute record holders for this are the markets in Split, Dubrovnik and Rijeka. Parsley is a bit cheaper down in Dubrovnik where it sells for 30 kuna, in Split it stands at 40 kuna and in Rijeka, on some markets it's costing as much as 50 kuna.

Among the most expensive foods is garlic, which sells for as much as 60 kuna per kilogram at the moment. Those with more luck can find it for a few kuna cheaper, but never under 50.

Even something as basic as lettuce seems to have become a luxury of sorts thanks to soaring Croatian inflation. It is being sold at the price of 25 kuna down in Dubrovnik, Split and up in Pula, while you'll pay 15 kuna in Osijek. Carrots are slightly cheaper, ranging from 10 kuna (Pula and Karlovac) to 25 kuna (Dubrovnik). Beans are 50 kuna when sold at markets. Potatoes are 8 kuna in Dubrovnik, 10 in Split, 12 in Osijek. Peas in Pula are around 35 kuna.

Green cabbage and kale range from 15 to 20 kuna, red onion in Split is 25 kuna, 20 kuna down in Dubrovnik, and the cheapest can be found in Karlovac and Koprivnica, where 10 kuna should be set aside for one kilogram. Young onions are more expensive and range from 25 to 35 kuna, which is very high for the average Croatian earner.

Fruit prices have also risen compared to last month thanks to ongoing Croatian inflation. Apples are the most expensive in Dubrovnik, Pula, Split (12 kuna) while the cheapest in Koprivnica and Sisak cost a mere 5 kuna. Oranges range from 10 to 15 kuna, lemons range from 15 kuna (Osijek) to 20 kuna (Dubrovnik). The Dubrovnik market is a record holder when it comes to the price of strawberries, where you'll need to set aside 50 kuna per kilogram, followed by Split where they cost 40 kuna and Osijek where they cost 30 kuna.

Due to the rise in prices of energy and raw materials, fertilizers, seeds and protective equipment, the rise in prices of fruits and vegetables is a logical sequence of the crisis in the market of agricultural products. Strawberries, garlic, chard, lettuce have thus become a luxury for many Croatian wage earners who, even before the price increases caused by inflation, could barely make ends meet. As a result most people now bypass the markets and buy their products in shopping centres where the shares on certain agricultural products are either lower quality imports or vegetables which are being sold just before their expiration date.

All this points to tectonic disturbances in the agricultural market caused, among other things, by the war in Ukraine, which can be overcome only by joint actions of producers and the state, especially in terms of a fairer distribution of incentives from EU funds with which Croatian farmers are dissatisfied.

For more, check out our lifestyle section.

Friday, 13 May 2022

Croatian Loan Interest Payments to Increase According to CNB

May the 13th, 2022 - Croatian loan interest repayments are set to grow, and the Croatian National Bank (CNB) has worked to highlight some of the main risks.

As Poslovni Dnevnik/Tina Lakic writes, the Croatian National Bank has stated that statistical indicators show that current economic growth strengthened earlier this year. But at the same time there was a visible weakening of consumer confidence, which remained relatively low in April, despite a slight recovery. As such, employment growth stopped in March, although nominal wages are growing more rapidly.

They also referred to the ongoing price hikes when it comes to both food and energy prices.

"Rising prices for oil, food and raw materials on global markets, partly affected by the war in Ukraine, are spilling over into Croatian prices of petroleum products and food, so inflation accelerated significantly during March. Due to the expected change in the monetary policy direction of the central banks of the largest economic areas, the increase in short-term and long-term government financing costs continued, and interest rates on corporate loans also rose slightly. In such conditions, the growth of placements to non-financial corporations accelerated sharply, while placements to households continued to increase at stable rates, reflecting mainly strong housing loans.

Increased systemic risks

The overall exposure of the Croatian financial system to systemic risks has increased due to the war in Ukraine and sanctions placed against Russia, and when it comes to the Croatian economy in particular, these effects are largely seen in movements in raw material and other commodity prices on both global and regional markets. Pandemic-related uncertainties, as well as recent geopolitical tensions, have so far not threatened the stability of Croatia's financial sector. An important role was played by the overall good liquidity and capitalisation of the banking sector, which is also supported by the protective layers of capital built so far,'' they stated from the CNB's Council.

Challenges and risks for the Croatian financial system in the coming period are related to the development of geopolitical instabilities and inflationary pressures, as well as the effects of the expected normalisation of monetary policy and the continued rise in housing prices. The duration of the ongoing war in Ukraine and the intensity of its consequences will determine the strength of the impact on macroeconomic, fiscal and financial developments. Disruptions in supply chains, which further encourage price increases, can place a major burden on both businesses and households.

Tightening monetary policy and rising Croatian loan interest rates

"In the context of rising inflation, monetary policies are expected to tighten with the raising of key interest rates of central banks in the largest economic areas. This will gradually increase the cost of new borrowing as well as the debt repayment burden for existing debtors with variable interest rates. The possible adverse effects of Croatian loan interest rates and their increasing on the financial system are being mitigated by the tendency to reduce total household and corporate indebtedness with a relatively low level of household debt and a small number of loans with which repayments could increase significantly. In addition to that, the expected introduction of the euro in 2023 could further mitigate the growth of the price of new borrowing for the state, as well as for other sectors.

Tightening up financing conditions in international financial markets, and then raising Croatian loan interest rates, could mitigate some of the risks to financial stability that have intensified over a long period of low interest rates, such as strong private sector borrowing, low bank profitability and the search for risky alternatives which still do offer higher rates of return. Such is the risk associated with the strong rise in residential property prices, which is supported, among other things, by a large volume of housing loans,'' they said from the CNB.

The property market is under a magnifying glass

The CNB continuously monitors and analyses the development of systemic vulnerabilities in order to be able to act on them if necessary with measures within its competence.

Thus, at the beginning of 2022, it was announced that they'd raise the countercyclical buffer rate, which will further strengthen the resilience of credit institutions to possible losses associated with exposure to cyclical systemic risks in the downward phase of the financial cycle or in the event of a sudden crisis. The CNB continues to closely monitor lending conditions at the level of individual debtors, so that potential sources of systemic risks can be diagnosed in a timely manner and measures can be taken to mitigate them, including prescribing stricter consumer lending conditions.

For more, make sure to check out our lifestyle section.

Wednesday, 11 May 2022

Financial System's Exposure to Systemic Risks Increased, Says Central Bank

ZAGREB, 11 May 2022 - The Croatian National Bank (HNB) Council on Wednesday said the domestic financial system's exposure to systemic risks has increased due to the war in Ukraine and sanctions against Russia, and that inflation will increase the cost of new loans and burden loan repayments with variable interest.

The HNB Council discussed current economic and financial trends, underscoring that statistical indicators show that economic growth strengthened at the start of the year but that weaker consumer confidence is evident which, despite a mild recovery, retained a relatively low level in April.

Increased employment stopped in March, even though nominal wages are growing increasingly fast, while inflation has accelerated as the increased prices of oil and raw food on global markets, partially affected by the war in Ukraine, are spilling over onto domestic prices of petroleum products and food, HNB said.

Due to expected changes in the monetary policies of central banks in major economic areas, short-term and long-term costs of state financing have increased, with interest rates on corporate loans increasing slightly too, the HNB Council said. In those circumstances, lending to non-financial companies has accelerated, while household loans continue to increase at stable rates, reflecting strong housing loans.

The financial system's overall exposure to systemic risks has increased due to the war in Ukraine and sanctions against Russia, with the consequences prices of raw materials and other goods on global and regional markets. The uncertainties with regard to the pandemic and recent geopolitical tensions have not yet jeopardised the stability of Croatia's finance sector, HNB said.

The challenges in the coming period are related to geopolitical instabilities and inflationary pressures, the effects of expected normalisation of the monetary policy and the continued increase in real estate prices, HNB said.

Gradual price increase on new loans and burden on repayment of loans with a variable interest rate

The duration of the war in Ukraine will determine the degree of impact on macroeconomic, fiscal and financial trends.

HNB notes that disruptions in supply chains which additionally impact price rises could be a great burden on companies and households. In circumstances of growing inflation, it is expected that monetary policies will sharpen and key interest rates will increase in the largest economic areas. That will gradually increase the cost of new loans and burden loan repayments with a variable interest rate, HNB noted.

The negative impact of increased interest rates is buffered by a tendency of a decreased debt by households and companies and a relatively low level of debt by households and a relatively small number of loans whose repayments could increase significantly. The introduction of the euro as the official tender will additionally impact price increases and the government's debt.

Harsher financing conditions on international financial markets and then an increase in domestic interest rates could buffer some risks for financial stability that strengthened over the long period of low interest rates, such as the strong borrowing by the private sector, low bank profitability and search for risky investment alternatives that offer a higher return rate. That risk is also related to a strong price increases in real estate, which is supported by a large volume of housing loans, HNB said.

HNB underscored that it is monitoring and analysing the development of the financial system's vulnerability so that it can introduce measures in its remit. It recalled that at the start of 2022 it had announced raising the rate of anti-cyclic protected capital which would additionally strengthen the resilience of credit institutions from possible losses related to exposure to cyclic systemic risks in a downward phase of a financial cycle or the emergence of an unexpected crisis.

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

Tuesday, 10 May 2022

Prices for Croatian Apartments and Hotels Shoot Up in Post-Pandemic Surge

May the 10th, 2022 - Prices for hotels and Croatian apartments have shot up all along the Adriatic coast in a post-pandemic boom of sorts following two very troubled years. 

As Poslovni Dnevnik writes, every year along the Croatian coast there are more and more expensive hotels, private apartments, restaurants and less and less places available for the average Croatian pocket. The global coronavirus pandemic hasn't worked to change that either, meaning that this year's prices for Croatian apartments, hotels and other items will surprise many, reports Vecernji list.

The past two summer tourist seasons have grown minimally due to reduced demand, and this summer staying in some hotels during the very height of the summer season will be more expensive than usual, in some cases - by up to 50 percent.

''Yes, this year we're witnessing a significant increase in the prices of accommodation and catering and hospitality facilities. Analyses have shown that accommodation in Adriatic hotels and campsites has risen by an average of 20 to 25 percent compared to last year, and due to significantly increased demand and a good pace of reservations for the main summer season, prices will rise to 50 percent in exceptional cases,'' said consultant Sanja Cizmar, the director of 505 conferences.

Rising inflation and the growth of almost all input costs, from food to energy and labour costs, haven't really left hosts with much room for maneuver. Risks are generally higher in facilities with more complex services, especially when food is included, so corrections have generally been more abrupt in hotels than they have been Croatian apartments and other such private facilities.

"The hotel and tourism sector in Croatia isn't alone when it comes to the raising of prices. Similar trends are present across most Mediterranean countries, so I don't believe that price positioning here in Croatia will stand out significantly from other destinations in the Mediterranean. Ultimately, due to the general wave of rising prices for all types of goods and services, consumers expect higher prices now. However, it will be an art to follow market trends and actively adjust our prices accordingly in order to maintain competitiveness,'' pointed out Cizmar.

It remains to be seen whether this increase in prices will end up putting Croatian residents off from visiting their own coastline. Nedo Pinezic, a consultant specialising in family accommodation, weighed in on the topic:

"Increases in prices have been the highest in those facilities that haven't touched their prices at all in the past two years. We're lucky that we do have a range for every pocket, from premium and standard to low budget offers,'' stated Pinezic, who added that prices are growing further as the main part of the summer tourist season approaches.

Prices are currently thirty percent lower than they will be from July onwards, and in the peak two or three summer weeks, we'll probably witness additional price increases. For example, nights spent in three-star Croatian apartments will now cost 110 to 130 euros, and in the very height of the season, probably well above that. Along parts of the coast with a higher concentration of lower quality facilities, one can, of course, get by a bit more favourably.

Although there is practically no Riviera without at least one de luxe hotel, the rule is that it is easier to find a zone of cheaper prices that goes down the coast to the south. For example, on the Crikvenica Riviera, some islands, as well as in smaller places in the Makarska area, where guests from Bosnia and Herzegovina with generally lower purchasing power tend to gravitate en masse. There are many affordable Croatian apartments dotted throughout Istria.

"Reservations are coming in again after the stalemate due to the Ukraine-Russia war, but the south of the country is still the weakest. For Brac, Korcula, the Makarska Riviera etc there's currently a discount of approximately 30 percent for certain periods throughout the tourist season. For stays in May there are special prices along the coast. Most guests coming from other parts of Croatia are the ones who typically want to see if there are any discounts. But it's all relative,'' stated Dalibor Canaglic, the product manager of Palma Travel.

All in all, wherever you go in Croatia, you will almost always need at least a few hundred kuna more for accommodation than you would have needed last year.

For more, check out our travel section.

Thursday, 5 May 2022

Three Croatian Egg Farms Collapse, Set to Close at End of Week?

May the 5th, 2022 - Three large Croatian egg farms have collapsed and their management has stated that they plan to remain open and in function only until the end of this week.

As Poslovni Dnevnik writes, Croatian poultry and egg producers are currently navigating troubled waters. Just as they announced before Easter, some are closing down their farms because their production costs have become too high to be able to cope with.

RTL discovered that three large Croatian egg farms are set to shut their doors, and the producers have also been complaining that the traders must be deaf and are offering them purchase prices which are much too low, even though the eggs on the shelves have never been more expensive.

This concerning information was also confirmed by the Croatian Chamber of Agriculture. The president of the chamber, Mladen Jakopovic, said: “two or thee are closing, we found out about that informally. Two or three Croatian egg farms will shut. According to our information, that would amount to about five percent of Croatian egg production at this time.''

There is almost no egg producer who isn't facing trouble at this moment in time, and they are thinking about reducing production entirely because the current situation is becoming unbearable.

Magi Lukac, the head of one egg production company, pointed out that the costs are growing every day. “We just managed to raise the prices a bit, and now we've had a new blow with new costs that don't follow the selling prices. We have information that many poultry farmers are going to reduce their capacities,'' he said.

The Republic of Croatia is almost self-sufficient when it comes to egg production, but after the coronavirus pandemic, inflation and the situation with the war in Ukraine, the prices of cereals and energy have skyrocketed, and they complain that traders are not giving them a higher purchase price despite that.

"The price of wheat and corn have grown by 200 percent, soybeans and sunflower meal have gone up by 100 percent, and eggs aren't following that growth. I'm afraid that we will be needing to feed tourists with foreign eggs this year,'' Lukac pointed out for RTL.

The competent ministry says they are preparing additional incentives in order to try to soften the blow being dealt to Croatian egg farms, as well as to businesses directly related to the industry.

Zdravko Barac, the director of the Directorate for Animal Husbandry and Food Quality of the Ministry of Agriculture, said: “Of course we won't allow a shortage of eggs to occur, nor will we allow that for other livestock products. We reacted with a whole series of measures in a difficult period two years ago.''

Five million kuna is intended for poultry farmers, and 2 million kuna for egg producers, and on top of that, some more good news is coming from Brussels.

Mladen Jakopovic, President of the Croatian Chamber of Agriculture, pointed out: “It has been agreed that the import of wheat and other cereals into the European Union would be exempt from anyone needing to pay customs duties and associated customs costs. That is 20 million tonnes, which is 20 times more than Croatia's total annual production.''

This temporary measure should take effect in two weeks, but whether or not it will be enough to prevent the locking of the doors of more Croatian egg farms is yet to be seen.

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

Wednesday, 4 May 2022

FinMin, HNB Governor Believe Inflation Criterion for Euro Area Entry to be Met

ZAGREB, 4 May 2022 - Finance Minister Zdravko Marić and Croatian National Bank (HNB) Governor Boris Vujčić on Wednesday expressed optimism regarding the fulfilment of the inflation criterion for euro area entry, with Vujčić saying that it would be unusual for Croatia to be asked to have an inflation rate below the current euro area rate.

Speaking at the 15th session of the National Council for the introduction of the euro as legal tender in Croatia, Marić recalled that a few days ago the government sent a convergence programme to Brussels and now it expected an assessment and a report to be published by the European Central Bank and the European Commission, to be followed by the checking of compliance with the Maastricht criteria, with the focus being mostly on inflation.

Marić said that the average inflation in Croatia for the first three months of 2022 was 6.3%, which, he said, was the euro area average and slightly below the EU average.

The Maastricht criteria refer to exchange rate stability, price stability, interest rate stability and two important indicators related to public finance - budget deficit and public debt.

Under the Maastricht criteria, the assessment refers to the inflation rate in the last 12 months, but not in relation to the general average but to the average of three countries with the lowest inflation rates. That means that Croatia should have an inflation rate that is a maximum 1.5 percentage points above the average inflation rate in the three EU countries with the lowest inflation, Marić said.

He added that the EC and the ECB have the right to exclude some of the countries from the calculation at their own discretion, which, he said, happened in 2014.

Marić said that without wishing to prejudge anything, he believed that European partners fully understood that the increased inflation in Croatia did not in any way differ from the situation in the EU.

"In anticipation of data on inflation in April.... we firmly believe that Croatia will meet that remaining criterion," he said.

The target date for Croatia's entry to the euro area is 1 January 2023.

Vujčić: Importance of euro area membership in times of crisis  

HNB Governor Vujčić said that the reference value a country must comply with to join the euro area had so far never been lower than the average inflation in the euro area.

"If that is so, Croatia too should be able to meet the criterion because it would be a little odd to demand that it should have a lower inflation rate than the euro area which it is joining," he said.

He underlined the importance of euro area membership in times of crisis, noting that crises were easier to overcome and the consequences were significantly fewer for euro area members.

Croatia's lagging behind in terms of growth in the last decade is due to the fact that in crises its decline was much larger than in other countries, he said, noting like Marić, that euro introduction would not cause additional inflationary pressure.

Asked where after the introduction of the euro, kuna coins would be stored, Vujčić said that a solution would be found in cooperation with the Defence Ministry, to be announced after it was determined how they would be stored.

Vujčić also reported that trial euro coins with the national sides that had been approved had already been made and that after a decision on Croatia's euro entry in July, full production should be launched.

First increase in interest rates by ECB possibly in July already

Given that the US Fed Bank has already started a cycle of increasing interest rates, reporters asked Vujčić if the ECB planned the same move, to which he said that last year already he had announced that we could expect a gradual increase in interest rates in 2022 and that the effects were already visible on the bond markets.

When it comes to the ECB, it first plans to halt the programme of quantitative easing by the third quarter of this year, after which interest rates will increase. "We don't know when that will be, however, it is possible that the first increase in interest rates by the ECB could be as early as July," Vujčić said.

He explained that a good part of what will occur with increased interest rates of central banks has already impacted the market, which anticipated it. "When something is announced, financial markets don't wait for that to occur but immediately incorporate it in the price," Vujčić said, adding that it was usual in periods of growing inflation for central banks to respond by increasing interest rates.

In mid-April, the Ministry of Finance released euro bonds on the international capital market with a total nominal value of €1.25 billion, a maturity of 2032, an annual coupon interest rate of 2.875% and a real yield of 2.975%.

If they were to be issued today, the reference interest rate would be 33 base points higher, which means they would be 0.33% more expensive, hence about €4 million will be saved on interest each year, Minister Marić underlined to illustrate the volatility of the market, due also to the war in Ukraine.

PM: Croatia's economy most euroised of all EU economies

During the meeting of the National Council, chaired by Prime Minister Andrej Plenković, the PM presented the design of the national side of the €1 coin and a final bill on euro introduction, to be sent to the parliament on Thursday for second reading.

At the meeting, reports were submitted on the progress made in implementing activities related to introducing the euro.

Plenković said that euro introduction and accession to the Schengen Area were two strategic goals for deeper integration with the EU.

He said that Croatian citizens and the economy would benefit from membership in the euro area, underscoring that Croatia's economy was the most euroised of EU economies outside the euro area.

Euro deposits account for 76% of total savings and term bank deposits, 47% of kuna loans are pegged to the euro while countries of the euro area account for 53% of commodity exports and 59% of commodity imports, he said.

Plenković recalled that last week the government said that it foresees a GDP growth of 3% this year and a budget deficit of 2.8% of GDP, to fall to 1.6% in 2023 and 1.2% in 2024. At the same time, public debt should also be reduced to 76.2% this year, 71.7% in 2023, 68.9% in 2024 and 66.9% in 2025.

"All this has to be viewed in the context of changed circumstances and growing energy prices, which impacts all processes," said Plenković, recalling last week's estimate of a 7.8% inflation rate this year.

He stressed that nine measures in four areas had been met as part of the action plan to participate in the European Exchange Rate Mechanism II (ERM II). They are related to preventing money laundering, a more favourable business environment, improved management of state-owned companies and strengthening the bankruptcy framework.

We believe that this comprehensive approach will make it possible for all key and final decisions about Croatia's accession to the euro area to be made at the EU and euro area levels in June and July, said Plenković.

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

Wednesday, 4 May 2022

What Are Government's Next Steps if Croatian Inflation Continues?

May the 4th, 2022 - If Croatian inflation continues and becomes worse, posing more issues for the pockets of the country's already struggling residents following coronavirus-induced lockdowns and restrictions, just what does the government have up its sleeve to combat it? Finance Minister Zdravko Maric has claimed that there is still ''munition'' to be released in this sense.

As Poslovni Dnevnik writes, Finance Minister Zdravko Maric also answered the question as to whether the Croatian inflation rate will end up reaching double-digit figures: "I wouldn't go that far. Lithuania, Latvia, Estonia, the Netherlands and the Czech Republic all recorded double-digit rates back in March. Some of them even nearly 16 percent. Croatia hasn't done so yet,'' he said.

Maric spoke on Dnevnik Nova TV about problematic fuel prices, the situation on the gas market, Croatian inflation, the impact the current situation is having on the Eurozone, which Croatia is on schedule to join in 2023, as well as the current state of the Croatian budget.

Minister Maric first commented on whether the acceleration of Croatian inflation is going to continue to pose a very serious threat to the country because of everything that is unfolding globally, with the ongoing Ukraine war included.

"According to the latest projections, the average rate this year is 7.8 percent. Considering that the last published data said it would be 7.3, and before that the inflation rates were slightly lower, unfortunately my answer to your question is yes," he stated, before going on to discuss the aforementioned topic of potential of double-digit Croatian inflation.

Inflation has suddenly become a key variable on Croatia's path to the Eurozone, which it is due to enter early next year.

"We've been talking about the budget for years, and in the end, neither the public debt nor the budget deficit is a topic. Croatia has been exactly between the Eurozone and the EU average for the last 12 months," he said.

"In the middle of this month, we'll have the data for April, both for Croatia and for all EU countries. This will be the last input that enters the convergence report. At the beginning of June, the European Central Bank and the European Commission will publish this report separately. I really believe we'll get a positive outcome. The official decision should come in early July,'' added the minister. He also said that he wasn't in favour of delaying Croatia's entry into the Eurozone, which some are calling for owing to this dire situation. He believes that the Eurozone shows the best benefits during times of crisis. VAT for certain product categories was planned to be reduced when Croatia switches to the Euro, but the government slashed it beforehand anyway.

"If necessary, we have more ammunition to help people out in this situation," said the minister, before speaking about the healthcare system and whether he sees any room for much needed reforms there."Drugstores write to us periodically, both to my colleague Health Minister Vili Beros and to me. We have a fair relationship. Unfortunately, the payment deadlines for both hospitals and pharmacies have risen again. They've reached a level of over 180 days, and for some hospitals, that level is now over 200 days,'' said the Minister, and when asked how much the healthcare system's debt is and whether he knows how many ''holes'' there are when it comes to that, he answered: ''Unfortunately, I do know because every month that hole increases, meaning obligations grow, and it's been between 400 and 500 million over the last few months.'' he stated.

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

Thursday, 28 April 2022

Inflation Soaring, Wages Stagnant: Croatian Standard May Halve

April the 28th, 2022 - The Croatian standard could literally be slashed in half as inflation continues to soar and the average wage across the country remains more or less the same.

As Poslovni Dnevnik writes, due to the increase in the price of energy and food, the Croatian standard could literally be halved. Then comes the big worry of price increases after the introduction of the euro in 2023. On top of that, 240,000 peoples' bank accounts have already been blocked, Deutsche Welle writes.

"The Croatian standard of living will fall over the next few years due to rising energy prices, shocks in supply chains, as well as increased private borrowing, lending and the uncontrolled printing of money," said Dr. sc. Marinko Skare, a rector and professor at the Juraj Dobrila University of Pula.

The Croatian population was hit by rising gas, fuel and electricity prices even before the outbreak of the war in Ukraine and the economic consequences that naturally follow, and due to shortages on the global market, a significant rise in food prices began last year.

The Croatian Government mitigated that price shock with a package of economic measures as part of which it reduced VAT on energy and certain foodstuffs.

Skare believes that the effects of these measures will be negligible: “It's like 50 percent balances (discounts) on Trieste's Ponte Rosso in the last century. They include two t-shirts and everything else remains at its normal price. The situation is the same with VAT: sure, the prices of napkins will fall, and the prices of all necessary consumer goods that people buy will rise. Food and energy prices will rise regardless of the government package and this price increase has already been calculated into inflation and prices. We all know that food and energy will become even more expensive, in an optimistic scenario, by around 10 to 15 percent,'' said Skare.

Croatia's entry into the Eurozone

Unfortunately, he added, the Republic of Croatia is almost entirely dependent on the tourist season and not a great deal else: “A once respectable industry-based economy has turned into the Dominican Republic or the Maldives. These measures must go towards energy self-sufficiency (LNG, solar panels), with the prolongation of Croatian Eurozone entry,'' believes the Pula-based economist.

Namely, according to him, the introduction of the single currency from the beginning of 2023 will bring a further wave of inflation to Croatia, which is something nobody needs at this moment in time.

"The experiences of other countries have shown that the growth of prices on an annual basis after the introduction of the euro was on average 2 to 2.5 percentage points. Of course, this isn't the right timing for the introduction of the euro in Croatia because the only instrument you have in the fight against inflation is monetary policy,'' he explained. In his view, a single monetary and fiscal policy at the EU level is just another economic myth.

"The economies of Italy, Germany, Ireland and France have almost no similarities with the economy of Croatia. How will you solve the problem of inflation in Croatia through the ECB? In addition, the ECB is the worst of all, the ship is sinking, but the music is still playing, money is being printed, interest rates are at historically low levels, and inflation is going wild,'' stated Skare.

When he talks about the more optimistic variant, he predicts the current level of inflation to remain as it is over the next three years. However, if the war in Ukraine escalates and leads to energy and trade wars, he believes there are no limits to rising prices in the coming years, and that doesn't bode well whatsoever for the Croatian standard as we know it now.

Everything points to an enormous crisis

"The world has never been closer to a new Great Depression than it is now, possibly bigger than the one back in 1929. Unfortunately, all the causes of the 1929 crisis are before us: the possible collapse of the stock market (the uncontrolled printing of money) and global trade (a global pandemic and the war in Ukraine), the unadjusted policies of governments around the world and the potential decline in international lending and borrowing, future monetary contraction, bank panic and bankruptcies,'' explained Skare.

He believes that the real Croatian standard could fall by up to 30 percent, and if the Ukraine-Russia war continues as it is and the ECB's policy doesn't adapt and change, he believes that a fall of up to 50 percent in the Croatian standard is also possible. On the other hand, he says there is no room for wage and pension growth to the extent that it would mitigate the fall in the real standard due to rising prices as it would lead to hyperinflation and stagflation on an unprecedented scale.

Everything is more expensive, yet the average Croatian income is the same

Along with inflation, the number of people across the country living on the brink of poverty is growing, as is the number of those who have had their bank accounts blocked due to accumulated unpaid debts. According to the latest data from the Financial Agency (Fina), more than 240,000 people have had their bank accounts blocked due to collective overdue debts of 24.8 billion kuna, along with interest.

Kresimir Sever, the president of the Independent Croatian Trade Unions, noted that the Croatian standard was greatly endangered even before the wave of price increases that started last year.

"According to the Central Bureau of Statistics (CBS), about 27.2 percent of the monthly cost of the average Croatian household falls on food and non-alcoholic beverages, and 17.7 percent on housing costs, which includes energy bills. Since these are areas where price increases have been very much pronounced, it's clear that this is causing an extremely strong blow to a wider circle of people.

''Households in rural areas, those who are single and/or retired, those with more children, the unemployed and the sick are groups of people who are particularly at risk,” warned Sever.

"The Government doesn't have many mechanisms at its disposal"

The at-risk-of-poverty rate for the year 2020 stood at 18.3 percent in Croatia, and since these official figures are solidly late, the real situation is much worse, according to Sever. It is realistic to expect a further wave of rising prices for food, transport, housing, and consequently other goods.

"Apart from the economic measures it has taken, the government doesn't have many mechanisms at its disposal. A little more can be done in the area of ​​excise duties on fuel, the VAT on electricity can be lowered from the current 13 to 5 percent. However, when it comes to lowering VAT, for example on petroleum products, there's no guarantee that, precisely because of the freedom to set prices, they will be reduced at all. When it comes to the possible freezing of the prices of some foods, there may be shortages because the seller doesn't even want to offer these products because such prices reduce his profit,'' concluded Kresimir Sever.

For more, make sure to check out our lifestyle section.

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