CNB Council: Economic growth projected at 3.1% in 2019

Published: 10/7/2019

At its today’s session, the Council of the Croatian National Bank examined recent economic and monetary developments and the latest financial stability analysis. The Council also analysed the report on the banking system condition for the first quarter of 2019 and accepted the report on the operation of the Croatian Mint.

The latest indicators of economic activity and the expected further growth in investment activity of the public and private sectors and household consumption suggest that real GDP growth rate might stand at 3.1% in 2019. However, the growth in the number of employed persons and the fall in unemployment might start to slow down, albeit very gradually, while the inflation rate in 2019 might fall to 0.7%, mainly as a result of a smaller contribution of energy prices and the effect of the cut in the VAT rate on the prices of food and pharmaceutical products. The surplus in the current and capital account is expected to stand at 3.1% and its fall from the previous year is the result of a further widening of the foreign trade deficit, the effects of which are mitigated by a further growth in net exports of services and greater use of EU funds. As a result, the trend of improvement in the relative indicators of external debt might slow down slightly. With regard to fiscal developments, according to the Convergence Programme of the Republic of Croatia, the general government deficit might stand at around 0.3% of GDP in 2019, while the European Commission expects a budget surplus.

Amid such macroeconomic conditions, the CNB intends to continue to pursue an expansionary monetary policy and support economic growth while maintaining the stability of the exchange rate of the kuna against the euro. The expansionary monetary policy and a fall in interest rates on loans of domestic credit institutions are primarily mirrored in household lending growth. General-purpose cash loans are the biggest contributing factors, while total placements (excluding the government) growth on an annual level might reach the same level in 2019 as that recorded in 2018.

The analysis of the stability of and potential risks to the Croatian financial system suggests a further moderate exposure of the financial system to systemic risks. Further economic growth has a favourable effect on structural imbalances arising from the high level of general government debt and external debt. Favourable developments recorded in non-financial corporations are reflected in a better business performance, while the household sector recorded a fall in the level of assumed currency and interest rate risk. However, the effect of such favourable developments continues to be curbed by a persistently fast growth in the share of cash, mainly uncollateralized loans. The banking system remains highly capitalised and liquid.

At today’s session, the CNB Council approved the appointment of Siniša Špoljarec as Chairman of the Management Board of Imex banka d.d., Split, Boris Centner as Member of the Management Board of Erste&Steiermärkische Bank d.d., Rijeka, Dušanka Mišković as Member of the Management Board of Imex banka d.d., Split and Verica Ljubičić as Member of the Management Board of Samoborska banka d.d., Samobor.