As Poslovni Dnevnik/Ana Blaskovic writes, at the end of this year or at the very beginning of 2022, the situation in the Republic of Croatia should return to pre-crisis levels. This is of course good news for the domestic economy with the perspective of Eurozone entry in 2023, but this generally optimistic picture is still being threatened by numerous risks, from poor vaccination levels to so-called ”bubbles” on the Croatian real estate market. These matters could be heard being discussed at the conference of the Zagreb Stock Exchange and pension funds entitled “The Challenge of Change/Izazov promjene”.
Finance Minister Zdravko Maric announced that he would step out next week with a rebalance and a few new projections.
“At the end of this year, or at the beginning of next year, we should reach pre-pandemic figures,” he assured. The Croatian Government will also refresh its fiscal expectations for the next three years, which will be marked by the implementation of the National Recovery and Resilience Plan, the effects of which should boost GDP by 1.5 percentage points on average.
818 million euros have been pumped into Croatia so far, and the new cash injections will depend on the fulfillment of 34 different criteria by the end of the year. If they’re met, the government will submit a report to the European Commission (EC) in January or February, and then “we can expect a new payment in May or June.”
In terms of Eurozone accession, Finance Minister Zdravko Maric says, everything is currently going according to plan. Interest rates and the exchange rate aren’t in question, but inflation is a new fear. “Inflation is a priority for us because of society, the economy and of course because of people, but we should also look at it through Maastricht, even though Croatia is at the EU average. According to these projections, we should satisfy that as well. The real date of joining the Eurozone is 2023, I see no reason as to why we won’t manage to meet the criteria,” said Maric.
The introduction of the euro as Croatia’s official currency could reduce the risk premium by two levels and thus partially amortise the possible growth of interest rates, which has been a current topic lately.
Croatian National Bank (CNB) Governor Boris Vujcic, on the other hand, expects a quick recovery “in the shape of the letter V”, for 2021 in the form of GDP growth of 8.5 percent, and then of 4.1 percent. He noted that inflation is a consequence of supply disruptions, making it somewhat difficult for ordinary monetary tools to address it.
“Raising the reference interest rates over the next two years isn’t going to significantly affect the price of oil and gas, which make up half of inflation,” said Vujcic. He underlined that the current figures (3.5 percent in September, op.a.) are historically low, but that we have become accustomed to a long period of low inflation, which has in fact been too low.
“This year we expect an inflation rate of 2.3 percent, which isn’t worrying, it’s actually very close to the goal of monetary policy and it will calm down slightly next year,” he assured.
Risks in the macro environment…
In addition to energy, the CNB sees numerous risks in the macro environment in the form of the slower cleaning of the market from bad companies and the creation of a real estate bubble, among other things. Prices are also being pushed by foreigners buying properties, especially on the coast.
“The availability of property has started to deteriorate, loan installments in relation to disposable income are slowly growing. “If this trend continues, property purchasing becomes inaccessible to a part of the population with lower incomes, and this should be kept in mind because it’s now also becoming a political problem,” the governor warned.
Assessing the risks to financial stability, Hanfa’s Ante Zigman briefly summed it up by saying that “it isn’t exactly great, but it isn’t terrible either”.
“We’re not too worried about it all, but we’re on guard,” he said. In the second quarter, the risks were somewhat reduced, and for the third, in which inflation returned to the scene, there is no data to be looked into yet. There are a range of risks present; from investment concentration, labour market issues to, once again, the issue of real estate.
“Currently, there are high risks of valuation, the question is whether or not we have an overheated market. The risk of things falling due to high valuations is very possible “, warned the head of Hanfa. Labour Minister Josip Aladrovic out that there is reason for optimism at the end of the global coronavirus pandemic.
“We’ve never had closer cooperation between politics and economics. The government acted in a timely and adequate manner, we can say that we saved the economy. We’re now going into the job creation phase,” he said, announcing that a very important role is played by pension funds that manage 130 billion kuna.
“They need to invest in long-term sustainable investments, which will create pensions and increase them in the future. It’s up to us to redefine the regulations in the direction of the diversification of investments and goals, which we’ll do in the short term and in cooperation with those pension funds,” he concluded.
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