Lower GDP growth expected in 2020

Published: 17/12/2019

We expect the real GDP rate to stand at 3.0% in 2019 and to decline to 2.8% in 2020, said Governor Vujčić at the CNB’s management press briefing on 16 December 2019. Personal consumption is expected to accelerate slightly due to income tax amendments that will cause a small one-off increase in usable household income. Employment will continue to grow and so will wages, especially in the public sector, and lending. Personal consumption could therefore make the largest positive contribution to overall economic growth in 2020. Employment in the labour market is expected to continue to grow and the unemployment rate is expected to decline.

Due to the global slowdown and fall in crude oil prices global inflation pressures continued to ease. Expected euro area inflation, standing at only 1.2% in 2019, could decrease to 1.0% in 2020. Consumer price inflation in Croatia could decelerate to 0.8% in 2019 due to a cut in the VAT rate on certain products and a drop in refined petroleum prices, and it could accelerate again to 1.4% in 2020 on the back of the growth of food prices and excises.

The current and capital account surplus could amount to 3.3% of GDP in 2019, remaining unchanged from the previous year, and drop to 2.6% of GDP in 2020 as a result of a trade in goods deficit.

Domestic sectors’ financing conditions continued to improve in the second half of 2019. For example, interest rates on long-term housing loans with a currency clause continued to fall, with their average value dropping below 3% for the first time ever. Expectations are that lending to non-financial corporations will recover in 2020 and that household lending will decelerate slightly because of an anticipated further decrease in the growth of cash general-purpose loans.

The CNB intends to continue pursuing an expansionary monetary policy, thus supporting economic growth and maintaining exchange rate stability. In 2020, foreign currency purchases from banks will remain the main method for creating reserve money and boosting kuna liquidity. International reserves are anticipated to increase as a result, both in gross and net terms, although at a slower rate than in 2019.

General government balance could be slightly positive in 2019 and 2020, while the public debt to GDP ratio should continue to decrease. The CNB’s estimate shows that the positive general government balance held steady at 0.3% of GDP in 2019 and that it could deteriorate slightly in 2020 and stand at 0.2% of GDP. General government debt is expected to amount to 72.2% of GDP at the end of 2019. Public debt, anticipated to continue declining in 2020, could amount to 68.7% of GDP at the end of the year.