No further deepening of recession in Croatian economy

Published: 2/6/1999

At its meeting held on Wednesday, June 2, 1999 the Council of the Croatian National Bank, chaired by Governor dr. Marko Skreb examined recent economic and monetary developments and made several decisions acting in accordance with its authority.

In the first four months of this year industrial production was 3 percent lower than in the same period last year. In the first quarter of the year retail trade turnover was 7.2 percent lower and the number of tourist stays 9.8 percent lower than in the first quarter of 1998. Building industry and traffic also recorded lower levels of economic activity than in the first few months last year. In these circumstances, the number of registered unemployed persons at the end of April amounted to 318,657 which is 10.7 percent more than in April last year, while the number of employed persons amounted to 1,343,412 which is 0.3 percent less than in April 1998. Despite such economic environment, the net wage bill paid in March was 6.1 percent higher in real terms than in March 1999, and the net wage bill paid in the first quarter of 1999 was 5.2 percent higher than in the first quarter of 1998.

For a considerable period of time the exchange rate of the kuna remained without significant fluctuations. In May the CNB intervened on the foreign exchange market more seldom and with lower foreign currency amounts than in the previous months, so that at the end of May gross foreign exchange reserves amounted to USD 2.6 billion which is more than at the end of April. In the first quarter of this year, merchandise trade deficit narrowed by 17 percent in dollar terms, however, due to the reduced trade activity: exports decreased by 11.1 percent and imports by 13.7 percent in comparison with the first quarter of 1998. Data related to the movements in prices in May are not available yet, but the Council does not expect any changes in movements recorded in the previous period.

Monetary indicators attracting special attention are those signaling that there will be no further deepening of recession in the Croatian economy, as well as those pointing to movements in the banking sector. These are - besides the slow-down of negative growth trends in industrial production - the improved liquidity of the banking sector and the revival of the demand for cash. Additionally, the latest data indicate that the withdrawal of foreign currency deposits from commercial banks, that was observed in March and April, slowed down. Due to a more balanced relation between budgetary revenues and expenditures in April than in the previous period, the budget deficit was reduced to about 80 million kuna. Thus, there was no need for the government to increase its borrowings with the central bank and the government debt to the central bank remained on the relatively high level of 1.3 billion kuna.