The tables with data on competitiveness show the index of the nominal effective exchange rate of the kuna and the indices of real effective exchange rates of the kuna. The index of the nominal effective exchange rate is an aggregate indicator of the average value of the domestic currency against a basket of currencies of the main trading partners of the Republic of Croatia. The indices of real effective exchange rates of the kuna are often used as indicators of changes in international competitiveness of the domestic economy, and are calculated by deflating the index of the nominal effective exchange rate of the kuna. The relevant relative foreign and domestic price indices or unit labour cost indices are used as deflators.
Table H11 Effective exchange rate indices
The index of the nominal effective exchange rate of the kuna is a weighted geometric average of the index of bilateral nominal exchange rates of the kuna against the selected currencies of the main trading partners. The currencies of the main trading partners and their weights are determined based on the structure of imports and exports of manufactured goods, where the weights used reflect direct import competition, direct export competition and export competition in third markets (see Box 2 in CNB Bulletin No. 165, 2011). The group of countries included in the formation of the index of the effective exchange rates of the kuna comprises the following 20 partner countries: eight euro area countries (Austria, Belgium, France, Germany, Italy, the Netherlands, Slovenia and Spain), five EU countries outside the euro area (the Czech Republic, Hungary, Poland, Sweden and the United Kingdom) and seven non-EU countries (Bosnia and Herzegovina, Japan, China, the United States, Serbia, Switzerland and Turkey). The weights assigned to specific countries in the calculation of the effective exchange rates of the kuna are time varying weights, calculated to reflect the average structure of RC’s foreign trade over three consecutive years (for more details see Box 3 in CNB Bulletin No. 205, 2014), up until the period from 2013 to 2015, which is currently used in the calculation of indices for the subsequent years. The latest update of the weights (2013 – 2015) also reflects the changes in the structure of RC's foreign trade following the EU accession, when the statistical monitoring of trade in goods changed. The exports of goods are still shown according to the country of destination, while on the imports side, data are shown according to the country of dispatch, and not according to the country of origin, which has contributed to the statistical increase in the value of imports from EU member states, accompanied by the simultaneous decline in imports from other countries. With regard to the weights structure, this has resulted in a decrease in the weights of China, Italy, the United States and Japan, and an increase in the weights of Austria, Slovenia, Hungary, Germany and the Netherlands relative to the period from 2010 to 2012. In the calculation of the effective exchange rates of the kuna, the fixed chain-linking methodology on a three-yearly basis is used. The time series for base indices are calculated based on 2010. The increase in the index of the nominal effective exchange rate of the kuna in a certain period indicates that the kuna has depreciated against the basket of currencies and vice versa.
The index of the real effective exchange rate is a weighted geometric average of the index of bilateral exchange rates of the kuna adjusted for the corresponding indices of relative prices or costs (the ratio of price indices or costs in partner countries to domestic prices). Industrial producer price indices on the total market, consumer price indices (harmonised consumer price indices for EU member states) and unit labour cost indices in the total economy and manufacturing are used as deflators. The time series for the index of industrial producer prices on the total market (domestic and non-domestic) for Croatia is available from January 2010, while for the years before 2010, the time series for the index of industrial producer prices on the total market equals the index for producer prices on the domestic market. The time series for consumer prices in Croatia is constructed in the following manner: retail price indices are used for the period until and including December 1997 and consumer price indices for the period as of January 1998. As data on unit labour costs are not available for all the countries, the basket of countries for the calculation of the real effective exchange rate of the kuna deflated by unit labour costs in the total economy and manufacturing was narrowed to 15, that is, 13 countries trading partners – all countries trading partners (20 of them) excluding Switzerland, Turkey, China, Bosnia and Herzegovina and Serbia, that is, excluding these five countries and Belgium and Japan. Unit labour costs in Croatia are calculated as the ratio of compensation per employee to labour productivity (expressed as GDP per employee) (for more details on the calculation of unit labour costs, see Box 1 in CNB Bulletin No. 141, 2008). Data on the real effective exchange rate for the last month are preliminary. The historical data may be corrected for the subsequent changes in the data on deflators used in the calculation of the index of the real effective exchange rate of the kuna.