CNB Council session: Growth forecast for 2019 revised down slightly to 3%

Published: 9/10/2019

At its today's session, the CNB Council examined current economic and monetary developments as well as a report on the banking system condition in the second quarter of this year. The Council also adopted a monetary policy projection for the 2019 to 2022 period and enacted several decisions on matters falling within its competence.

Available monthly indicators point to an accelerated GDP growth in the third quarter of 2019. Industrial production edged up by 0.2% and real retail trade turnover decreased by 0.2% from the previous quarter. Employment growth slowed down, while the number of unemployed persons held steady from the second quarter. Wage growth continued at a similar rate as in the previous quarter. The annual growth rate of consumer prices declined from 1.1% in July to 0.8% in August, with the largest contribution to the decline coming from a decrease in the annual rate of change of the prices of industrial products, primarily clothing and footwear, processed food products and energy. The current and capital account balance decreased in the second quarter due to a sharp increase in the foreign trade deficit. The already high kuna liquidity of domestic credit institutions continued to grow in September, supporting ongoing favourable trends in financing conditions for domestic sectors. Total placements grew by 3.7% annually; placements to non-financial corporations fell by 1.9% reflecting several one-off effects in the previous year, while household placements increased by 7.0% in the same period. General government debt was higher at the end of June this year than at the end 2018, mainly as a result of the pre-financing of liabilities on foreign securities falling due in the second part of the year.

The latest CNB’s projections revised down slightly the real economic growth forecast for 2019 – from 3.1% to 3.0% – envisaging a more accelerated growth of domestic demand and a slower growth of foreign demand. The annual inflation rate is expected to fluctuate around 1.0% in the following months, and the annual average inflation rate is forecast at 0.9% in 2019, which is an increase of 0.2 percentage points. Slowdowns in some major Croatia’s trading partners could adversely affect future economic developments. Under such conditions the CNB will continue to pursue an expansionary monetary policy, while maintaining the stability of the kuna exchange rate against the euro.

Total systemic risk exposure remained unchanged on a moderately high level in the first half of 2019 and the financial system continued to be stable. Trends in the financial sector remained favourable: asset quality improved, solvency increased and reliance on external financing declined. The currently favourable financing conditions facilitate household debt servicing, but the prolonged period of low interest rates could lead to a risk underestimation and an increase in vulnerabilities.

The CNB Council approved the appointment of Marijan Kantolić as Chairman of the Management Board of Samoborska banka d.d., Samobor. Approval was also granted for the merger of Raiffeisen usluge d.d. with Raiffeisenbank Austria d.d.

The CNB Council also adopted decisions on the basic features of a 25 kuna commemorative circulation coin marking the 350th anniversary of the University of Zagreb and on putting in circulation this coin, entitled “350. OBLJETNICA OSNIVANJA SVEUČILIŠTA U ZAGREBU, 1669. – 2019.” The 25 kuna commemorative circulation coin dedicated to the 350th anniversary of the University of Zagreb will be put into circulation on 4 November this year.