On Tuesday government's decision to freeze fuel prices expires and, barring any new intervention, diesel and gasoline prices could rise again. According to unofficial reports, Eurosuper 95 could jump to 16 Kuna per liter, while could come in at more than 16 and a half Kuna per liter. Industry experts do not believe that government has many options available to it, as there is little room left to maneuver in terms of excise duties or Value Added Tax reductions.
Opening the Croatian National Bank's 28th Economic Conference in Dubrovnik on Sunday, national bank governor Boris Vujčić said that he expects an economic growth rate of over five percent in 2022, which is significantly higher than current forecasts. Vujčić reminded that the growth rate in the first quarter was seven percent, and that it could be even higher in the second quarter: “We have a very good booking situation in the tourism sector for the third quarter, so we can expect a better season than registered in the record year of 2019, not so much because of the bigger number of arrivals, but because of the price increase of up to 40 percent. So, the three quarters will be very good, however, in the fourth can expect a slowdown in economic growth.”
He went on to warn however, that the biggest Croatia faces is not inflation or interest rates, but the state of the energy market. He noted that gas supply issues could lead to a recession in 2023. He also said that national bank expects to see a further acceleration of the inflation rate by the middle of the year, and that the overall rate of inflation rate for the entire year is expected to be close to ten percent: “Our inflation, as well as in other countries, is primarily a consequence of price growth for energy and food. The price of energy depends to a considerable extent on the war in Ukraine, although it started to rise even before that, so the war is only an additional reason for growth. However, so long as the situation remains like this, it is difficult to expect a slowdown in energy price growth, although the base effect will change. We have to bear in mind that during the pandemic crisis, energy prices were at a historic low, and now they are rising due to growth in demand and economic recovery, and the war in Ukraine is an additional pressure.”
Vujčić added that government needs to decide for itself which instruments to use to influence food and energy prices, but also said that the longer this kind of crisis lasts, the emptier the bag of these instruments will become.
With regard to Croatia joining the Eurozone on January 1st of 2023, Vujčić said that it is in Croatia's interest to adopt the Euro with the least possible impact on prices, and that due to the high inflation rate, the effect will be marginal: “There is no need to worry about that. The bigger cause for concern is the rise in energy and food prices for other reasons, and not because we adopt the Euro. There is already a positive effect in the announcement of the rating change and on the financial market, because Croatia currently has lower financing and borrowing costs than if does not join the Eurozone. The markets have incorporated this into interest rates. In EU countries that have not joined the Eurozone, interest rates are significantly higher than in Croatia. Then there's Moody's announcing that it will upgrade Croatia's credit rating, which adds additional macroeconomic stability and lowers the cost of financing. So, these are the clear positive effects of joining the Eurozone.”
Addressing what many are calling a bubble in the real estate sector, Vujčić said that the European Central Banks decision to maintain a long period of low and even negative interest rates resulted in money moving into the real estate sector, which contributed to the growth of real estate prices: “Rising prices have resulted in real estate being less affordable for young people and first-time buyers. However, an expected increase in interest rates will reduce the pressure on the real estate market.”
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