19:08 / 13.07.2022.

Author: Domagoj Ferenčić

Croatian National Bank raises GDP growth forecast for 2022 to 5.5%

Croatian National Bank Governor Boris Vujčić

Croatian National Bank Governor Boris Vujčić

Foto: Marko Lukunic / PIXSELL

The latest data points were presented to the public on Wednesday at the Croatian National Bank’s biannual press briefing held in Zagreb. According to the bank the upward move in GDP this year will be accompanied by strong inflationary pressures.

The Croatian National Bank has raised its GDP growth forecast for this year to 5.5%, due to strong results in the tourism sector and robust consumer spending. However, inflation is also accelerating, and should come in at 9.4% this year. For 2023, the national bank is forecasting a slowdown in GDP growth to 2.5%, and inflation to 4.6%. Nonetheless, fears of a recession next year persist. National Bank Governor Boris Vujčić: "The fundamental risk of recession next year is the possible stoppage of gas delivery to Europe. That could result in a recession, primarily in our main foreign trade partners Germany and Italy, which would then spill-over onto us. Because realistically, at this time we're not feeling any spill-over effects from what's happening in Russia and Ukraine, given that they are small foreign trade partners for us. However, if our two main foreign trade partners fell into recession, then it definitely spill-over into Croatia."


As part of the adjustment to joining the Eurozone, in August the national bank will halve the required reserve ratio and minimum foreign currency claims for banks, the latter of which will be completely abolished in December. Governor Vujčić said that Croatia is planning on joining the Eurozone with the same interest rates as the European Central Bank, and added that the decisions adopted today are expected to affect domestic bank's interest rates: "By effectively making financing for banks less expensive, so that they have less reason to raise interest rates, in fact they can continue to reduce them depending on their business practices. But these two decisions we adopted today, will definitely push interest rates lower than they have been up until now."


Employers say that adopting the Euro will mean fewer expenses for businesses, which should result in higher wages. Currently, Croatian salaries are far from the Eurozone average. The president of the Union of Autonomous Trade Unions of Croatia, Mladen Novosel: "Croatia is second last in terms of both minimum wage and average salary, which when converted to Euros, are 500 and 1010 Euros respectively. Only Slovakia and Latvia are lower than us."


Source: HRT

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