Growth rate over 5% in 2022, recession possible in 2023


Photo: Robert Anic/PIXSELL

ZAGREB, July 3, 2022 – The Governor of the Croatian National Bank (HNB), Boris Vujčić, said on Sunday he expects growth of over 5% this year, significantly more than currently forecast, and that a possible halt in gas supplies could lead to a recession could result next year.

Opening the 28th HNB economic conference in Dubrovnik, he said that the growth rate was 7% in the first quarter and that it could be higher in the second quarter.

In the third quarter we have very good bookings in tourism, so that a better season than in the tourist record year 2019 can be expected, “not so much because of more arrivals, but because of higher prices by up to 40 percent,” said Vujčić.

Three quarters are very good and economic growth is likely to slow in the fourth quarter, he added.

The biggest risk is neither inflation nor interest rates, but the situation in the energy market with a possible halt in gas supplies, which could lead to a recession in 2023, Vujčić said, adding that by the middle of that period, HNB could face another Rise in inflation expected year and inflation rate in 2022 close to 10%.

Inflation in Croatia and other countries is primarily a consequence of the increase in energy and food prices, and energy prices depend to a large extent on the war in Ukraine, although they started rising before that, he said.

As long as the situation is like this, although the base effect will change, it is difficult to expect energy price growth to calm down, he added.

During the pandemic crisis, energy prices were at historic lows and are now rising due to rising demand and economic recovery, with the war in Ukraine putting additional pressure on them, Vujčić said, adding that it is up to the government to decide which instruments to be used to influence food and energy prices.

“The longer this crisis lasts, the emptier the pocket with these instruments,” he said, adding that it is in Croatia’s interest to switch to the euro with the least impact on prices and that the impact is due to high inflation be marginal .

A bigger concern is the rise in energy and food prices for other reasons, Vujčić said.

“The effect is already positive due to the announced change in rating and on the financial market as Croatia currently has lower financing and borrowing costs… Markets have incorporated this into interest rates. In EU countries outside the euro area interest rates are much higher than in Croatia.”

The long period of low and negative European Central Bank interest rates has led to money flowing into the real estate sector, which has contributed to the rise in house prices, Vujčić said.

“A large part of this increase is not from leveraged purchases. About 50% of all transactions are done without credit, so there is not much risk to the stability of the banking system,” he said, adding that due to the rise in priced properties, young people and first-time buyers have been less able to afford them. “The rise in interest rates will ease the pressure on the real estate market.”

The Dubrovnik conference will discuss the challenges of the post-pandemic crisis and will focus on inflation.

Vujčić said that since Croatia will join the eurozone on January 1, 2023, the conference will also discuss European fiscal rules, monetary policy and expected interest rate growth, as well as “issues in supply chains leading to price increases, production shutdowns, and the energy crisis as a result of geopolitical tensions and the war in Ukraine.”

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