Croatia’s central bank raises GDP growth forecast by 0.6pps

HNB expects GDP growth to accelerate to 3.1% this year from 2.6% in 2018, the central bank said in a press release on Wednesday. Recall that in December 2018 it predicted 2.7% growth, and trimmed it down to 2.5% in May. The upward revision follows higher than expected annual growth of 3.9% y/y in Q1 with Q2 GDP growth to be released on Aug 28 — the Economic Institute of Zagreb projects 4.7% y/y growth in Q2. Thus, NBS’s 2019 GDP growth projection is equal to the released by the EC on Wednesday summer forecast and is more upbeat than the forecasts of the other main institutions. The government has previously forecast 2019 growth of 2.5% but it is also likely to revise its projection upwards as indicated by FinMin Zdravko Maric. Note that while commenting on EC’s new forecasts, Maric noted that the key challenge with regard to economic growth was to raise the contributions of labor and productivity.

The central bank explained that the current indicators of economic activity and the expected growth of the investment activity of the public as well as the private sector and household consumption supported its expectation for a stronger economic expansion. At the same time, it says that employment growth and the unemployment decline may slow down slightly, while the inflation could decelerate to 0.7%, mainly due to energy prices and the effect of a reduction the VAT rate on the prices of food and pharmaceutical products. The central bank projects the surplus on the current and capital account at 3.1% of GDP with the decline from 2018’s level to be due to widening merchandise foreign trade deficit, as well as narrowing surplus on the services account and intensifying EU funds drawing. HNB also says that the trend of improving relative indicators of external debt could therefore slow down somewhat.

The central bank also said that in this macroeconomic context, it intends to continue to pursue expansionary monetary policy and to support economic growth by maintaining a stable HRK/EUR exchange rate. It says that the expansionary monetary policy and the reduction of interest rates on domestic credit institutions’ loans resulted in stronger growth in lending to households. It adds that the pace of increase of total placements in 2019 could be similar to that of 2018.

The HNB also said that the financial system remains moderately exposed to risks, the continuation of economic growth has a positive impact on structural imbalances, non-financial companies have better business results, and households’ currency clause and interest risks are being reduced, adding that the banking system remained highly capitalized and liquid.

Share this post

TOP