It is wrong to expect that central banks leaders will offer nearly miraculous solutions to economic problems, Vujčić messaged
Croatian Central Bank (HNB) Governor Boris Vujčić explains why the central bank is more optimistic today in their prognosis than it was half a year ago, when we could introduce the Euro, what is happening to loans and what are the reaches of monetary politics, published in Večernji List on July 18, 2016.
How do you comment on a Croatian paradox – we fare better without a government or one that is so dysfunctional that it was unable to meddle with economy?
In the short term, political uncertainty did not damage the economy. State spending was reduced so there are short term positive effects. But to increase the growth rate in the long term structural reforms of public administration, health services, education, labour market, justice system are needed.
You are not concerned for this and next year, you announced growth over two percent?
It’s a cyclical recovery. Relevant indicators available for the second trimester point to signs of recovery. Along with the continuing personal spending, there are signs of credit recovery. It also looks like we will have another great tourism season. But for long term growth, reforms are needed.
There is talk of a speedy introduction of Euro after Brexit. How realistic is this?
Croatia conforms to the inflation and interest rates criteria, while the overdraft procedure will require the continuation of fiscal adjustment. The public debt criterion might be realised in 2018 or 2019 at best.
Can money replace the lack of other policies?
Of course not. Expecting that central bankers will offer nearly miraculous solutions to economic problems are naive. We can offer short term illusions of improvement, but cannot solve structural problems. Money in the economy is like a lubricant, not a fuel. No matter what it seems like, the Croatian financial system has been the source of stability, not economic hardship.
Is a new credit cycle coming soon?
Newly approved domestic credit to both the business and residential sectors are positive. The rise of credit activity is slight and its intensity will depend primarily on economic activity. Interest rates are at historic minimums. Considering our credit rating, they are lower than what we could expect compared to other countries, but there are strong limitations. The level of debt is significantly higher, which makes the desire to issue new loans go down. HNB research shows that nearly a third of businesses are in too much debt so they cannot get new credit. The construction boom in residential buildings is done, while the population has taken out a lot of housing loans and is not willing to take more.
