Foreign and Croatian Macroeconomists Weigh in on “Coronavirus Recession”

Lauren Simmonds

As Novac/Adriano Milovan writes on the 3rd of April, 2020, due to the ongoing coronavirus pandemic, Croatia is facing a recession this year, with an estimated 6.1 percent drop in economic activity. The warning comes from Economist Intelligence Unita (EIU), a well-known London think tank affiliated with the Economist magazine, which assessed the state of the Croatian economy for Jutarnji list.


Prianthi Roy, the EIU analyst in charge of Croatia, said that Croatia is far too attached to tourism, an industry that will suffer the brunt of the force of the pandemic worldwide. Therefore, we should work to diversify the economy and turn to the development of other industries, which is not an easy job and will take many years. In addition, they estimate in London, Croatia is too attached to Italy in the trade of goods as well as in the exchange of services, and as we all know at this point, Italy is currently the country most affected by the coronavirus pandemic in Europe.

The consequences of the coronavirus crisis will be felt in all areas of economic and social life across the Republic of Croatia. Personal consumption is low and trade in goods has been minimised. In London, they expect the Croatian budget deficit to reach 3.1 percent of GDP this year, while public debt will jump to 81 percent of GDP. The current account deficit, which includes the exchange of goods and services abroad, will reach 2.8 percent of GDP. However, the EIU doesn’t expect that Croatia will have a problem with borrowing on the foreign market, nor will the stability of the kuna be called into question, although a slight depreciation can be expected.

The coronavirus crisis will be mostly felt in the second and third quarters, which will be in the negative. Unemployment will also increase, despite all of the government measures.

Slow recovery

Recovery, on the other hand, will be slow. The EIU expects Croatia to achieve an economic growth rate of just 1.2 percent next year. In doing so, it will not be able to count on traditional industries, such as shipbuilding, which has had major problems long before this crisis began.

”We don’t expect a return to potential GDP growth rates before 2022,” concluded the EIU interlocutor.

Although EIU forecasts sound rather catastrophic, Croatian macroeconomists are even more pessimistic about economic developments in Croatia. Moreover, many of them are adjusting their earlier forecasts to these new circumstances, which continue to change from day to day.

Among them is Zrinka Zivkovic Matijevic, a macroeconomist at Raiffeisen, who recently came out with a forecast of a fall in Croatia’s GDP of about five percent this year. Now, however, she fears that this drop will be much larger.

”This year, I expect an 8.5 percent drop in Croatia’s GDP. This forecast is based on the complete loss of the preseason and the loss of 60-70 percent of the main tourist season,” said Zivkovic Matijevic.

In particular, warned Zivkovic Matijevic, the second and third quarters in which the most tourist traffic is realised will be critical. The recovery, she added, can be expected next year, in which Croatia can achieve GDP growth of up to three percent.

Zeljko Lovrincevic from the Zagreb Institute of Economics fears that the coronavirus epidemic will be a major blow to the Croatian economy this year. And while in the first quarter, says Lovrincevic, some modest economic growth can be expected, given that January and February, both economically speaking, weren’t so weak, the second and third quarters could prove critical. Therefore, Lovrincevic expects that for the time being, Croatia could have a fall in economic activity of about seven percent this year.

”It will all depend on what happens with the coronavirus pandemic, which cannot be estimated at this time. But we have to keep in mind that Croatia is a service economy and that it isn’t sufficiently digitised, which means that lockdown is an enormous hit,” he said.

In the next year, he says, stagnation or a slight recovery may be expected depending on the development of the coronavirus situation, and in particular whether or not a vaccine will be found.

”It will take us five or six years to return to [the levels of] 2019,” warned Lovrincevic.

”The decline in economic activity in Croatia will be larger than that of 2009. It wouldn’t be surprising at all if we have a double-digit GDP decline this year because the whole world is affected by the crisis,” said macroeconomist Goran Saravanja.

He warned that Croatia is a small and open economy, which is highly dependent on developments in the environment, which is especially true of the country’s leading foreign trade partners, among which the enfeebled Italy holds a special place. Recovery can be expected in 2021, but Saravanja pointed out that this won’t happen quickly.

Make sure to follow our dedicated section for rolling information and updates on coronavirus in Croatia.


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