Croatian Central Bank Governor
(Croatian central bank governor Boris Vujcic)

Croatian economy to grow faster than expected in 2021

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The Croatian economy could  grow 8.5% this year, more than expected, thanks to revenue from tourism and household spending, the country’s central bank predicts.

“We will have strong growth in the third quarter and we expect this year’s overall growth at 8.5%,” central bank governor Boris Vujcic said during a financial market conference in  in the Adriatic resort of Opatija. “The figure comes not only from tourism, but also because of higher exports of goods,” he added.

The head of the central bank said the country is witnessing a very fast recovery, with almost all industries returning to pre-pandemic growth levels. “Business optimism has also grown across sectors, especially in service industry” he elaborated.

The European Union member most dependent on tourism expects that this year it will generate 70% of the income it did from foreign visitors in 2019, a record year, a figure of just over seven billion euros.

In an earlier forecast in July, the central bank had predicted the Croatian economy may grow 6.8% in 2021.

“We could reach the level of GDP we had in 2019 at the end of this year,” Vujcic stated. Previously, expectations were for the GDP level of 2019 to be reached towards the end of 2022.

Croatia’s economic growth is expected to slow down to 4.1% in 2022 but will positively influence employment and sales.

Under the baseline scenario of the central bank, inflation is forecast to accelerate to 2.3% this year as energy and food prices continue their upward trend before lowing down to 2.1% in 2022.

Croatian GDP
(Source: National Bank of Croatia)

The Croatian economy expanded by a record 16.1% year-on-year in the second quarter of 2021, the first period of growth in over a year. Household consumption surged by 18.4% while fixed investment jumped 18.3%. Public spending increased by 4.0% and net external demand contributed positively to the GDP as exports rose more than imports.

Meanwhile, total liquid assets (M4) grew by HRK 8.7bn (2.2%, based on transactions) in August from the month before, due to a strong rise in net foreign assets (NFA) of credit institutions driven by seasonal increase in the inflow of foreign currency from tourism, ending the month at HRK 398.3bn On an annual level, the growth rate of M4 shows a stronger seasonal increase relative to the previous year, and thus accelerated to 11.1% in August from 9.7% in July, while M1 picked up from 19.6% to 19.8%,  the Croatian National Bank said.

Last year, Croatia posted a record 8.4% decline in gross domestic product (GDP). Before that, the country’s biggest annual drop in GDP was 7.3% in 2009.