What does the Croatian National Bank’s main man say the Croatian economy can realistically expect in 2020?
As Jadranka Dozan/Poslovni Dnevnik writes on the 17th of December, 2019, if you were to ask Croatian entrepreneurs, finding an adequate workforce is at the top of the list of the most important problems. According to the survey of the central bank, entrepreneurs consider the problem of regulation or bad or complicated regulations to be bigger than finding staff, while that was only their sixth “concern” a mere four years ago.
Labour supply pressures are also one of the main drivers of wage growth. Since back in 2017, they have been showing solid growth in Croatia, especially when one takes into account that the employee benefits with their salary due to tax changes.
At the Croatian National Bank, as part of the economic projections for the current and the coming year, they pointed out that, following the acceleration of wage growth in 2019, next year Croatia can expect further acceleration, with the public sector leading the way, and not the private sector. Croatian National Bank analysts estimate that in the public sector, nominal gross wages will rise by about 4.3 percent this year, and by more than seven percent in 2020, while the private sector expects about 3.7 percent this year, and about 4.5 percent in 2020.
Looking in the proverbial rearview mirror, statistics suggest that Croatian wage recovery is still below expectations, but the Croatian National Bank notes that this may be partly explained by changes in the structure of total employees, because stronger employment growth occurs in fields with relatively lower average wages (in tourism, for example, with 80 percent of the total average).
Overall, on the labour market – and in terms of wages and overall employment – the Croatian National Bank’s Governor Boris Vujčić said that positive developments are expected to continue. In recent years, employment has grown on average around two percent, which is relatively modest, given the fact that the employment rate in Croatia is among the lowest in the European Union and certainly represents one of the major structural weaknesses of the country’s entire economy.
Compared to continued favourable developments on the labour market, economic growth could reach three percent in real terms this year, with the central bank projecting a slowdown in GDP growth of 2.8 percent in 2020, which is slightly higher than in previous projections (2.7 percent). In general expectations for the Croatian economy next year are slightly better than what was forecasted last autumn.
Despite the woes of the now truly insufferable topic of Brexit, all estimates suggest that its impact on leading EU economies, some of which are Croatia’s main foreign trade partners, will be smaller than expected a few months ago, when worrying recession scenarios were predicted for some. According to current forecasts, the Eurozone is expected to grow by 1.2 percent this year, and by an encouraging 1.4 percent in 2020.
In any case, foreign demand should remain solid, so the expectations for the growth of exports of goods and services from the Croatian National Bank in 2020 remain good (ranging from 2.8 to 3.3 percent).
The consumer price inflation forecast has also increased. After this year’s slowdown to (an expected) 0.8 percent (owing to the reduction in the VAT rate on certain products and falling oil prices), they expect the central bank to accelerate to 1.4 percent next year as a result of an increase in the annual growth rate, the cost of food and the rise in excise taxes. In previous projections, the Croatian National Bank has calculated a slightly lower 1.1 percent when it comes to inflation.
Thanks in particular to growth in services exports, the stronger and better use of EU funds and growth in remittance revenues, the current and capital account surplus will be higher this year than it was last year, but it is realistic to expect that this surplus will be slightly lower once again in 2020.
Relative indicators of foreign indebtedness should also remain positive, which means a decrease from 75.7 percent to 70.6 percent of GDP this year.
In such a macroeconomic environment, the Croatian National Bank intends to continue expanding its monetary policy, supporting the high liquidity of the monetary system while maintaining the nominal exchange rate of the kuna against the euro in a stable way, Vujčić emphasised.
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