Governor of the Croatian National Bank Vujčić comments on economic effects of latest events.
The Governor of the Croatian National Bank (HNB) Boris Vujčić said on Thursday that the negative impact of the Agrokor crisis on economic growth would be very moderate and added that the current political crisis should not significantly affect the economy, reports N1 May 4, 2017.
Agrokor’s influence on economic growth is moderate and far smaller than the disastrous predictions being mentioned in the public and the media, Vujčić said at the “Croatian Money Market” conference, adding that, although Agrokor is large, it represented a relatively small part of the GDP. He believes that too much focus has been put on the events surrounding Agrokor, while the implementation of structural reforms is being forgotten.
”We do not expect that Agrokor’s negative impact on GDP growth will be significant, but it is difficult to say how much it will be. We estimate that this could be between 0.3 and 0.4 percent of GDP, depending on how the restructuring will proceed.” he said.
Asked about HNB’s actions with regards to Agrokor, Vujčić said that the Croatian National Bank had done an excellent job regarding the exposure of the banking system to Agrokor. “We have brought the banking system’s exposure to Agrokor to a level which does not jeopardise financial stability. If the HNB had not done a good job in the last four years, we would now have a much larger crisis that would not only be a crisis just in the real sector, but also in the financial sector,” he said.
Speaking about the possible impact of the current political situation on the country’s financial stability, he said that in the last two years we have had a lot of experience with political crises and that they did not have a significant impact on the economy. “We had a recovery of the economy even during political crises, so I do not expect any significant negative effects.” the governor said.
Vujčić said that in 2017 he expected continued favourable labour market trends and employment growth, but that this year Croatia would not reach 1.5 million employed persons.
He announced a continuation of expansionary monetary policy reinforced by structural operations. This year, inflation is expected to increase due to inflationary pressures, which can be seen in rising prices of energy and food products. He stressed that it was wrong to say that deflation was a disadvantage, adding that last year it had a positive effect on GDP growth.
Vujčić said that the strong fiscal adjustment continued last year. “We came to the situation that, for the first time since 2007, the debt-to-GDP ratio has dropped significantly, and therefore we expect to leave the excessive deficit procedure this year.” He added that the banking system was still highly capitalized and liquid, that the banks’ profitability recovered in 2016, but that the crisis in Agrokor is expected to somewhat lower it.
