As Poslovni Dnevnik/Ana Blaskovic writes, Croatian economic recovery has actually been happening at a far more rapid pace than most could have ever predicted just a few months ago, but the financial system remains exposed to significant risks due to strong public debt growth, inflation in terms of property and the risk of what are known as zombie businesses – all of which are the undeserving victims of the pandemic.
The CNB Council warned that fiscal policy, among other measures, contributed to mitigating the effects of the ongoing coronavirus pandemic, and the decline in revenues and generous support for the Croatian economy spilled over into a jump in public debt (with increased interdependence between banks and the state itself). For the time being, the risks of government financing are mitigated by low risk premiums and favourable financing conditions, as well as generous European Union (EU) funds which have been made readily available.
The problem that has been snowballing for some time now is the warming up of the situation in the real estate market. Although they don’t explicitly mention inflation, the CNB points out that “high and rapidly rising residential property prices are increasingly being separated from the economic values that should determine them”. The number of transactions during the pandemic decreased somewhat, but prices only slightly slowed growth on the wave of cheap money, government subsidies and stable levels of employment and income.
Housing loans have been growing rapidly, and although they’re granted with prudent lending conditions, “part of the loan shows increased repayment ratios to income, which in unfavourable circumstances may exacerbate the effects of disturbances in the real estate market.”
Finally, with the longer duration of the coronavirus pandemic and fiscal stimulus associated with it, the threat of corporate sector zombification grows. Parts of the economy continue to suffer from anti-epidemic measures, and while premature repeal of some measures can jeopardise healthy enterprises, those companies with unsustainable business models can also actuallt benefit from maintaining them for too long
. “This may reduce corporate dynamism and zombify the corporate sector, with unfavourable implications for Croatian economic recovery, growth and financial stability,” the CNB warned.
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