Croatia: IMF predicts the economic growth of 5,4% in 2021

Croatia: IMF predicts the economic growth of 5,4% in 2021

The International Monetary Fund (IMF) predictions for Croatian economic growth in 2021 are optimistic, but Croatia had not only the coronavirus pandemic to deal with, but two devastating earthquakes, too. Both lead to a drop in economic activity of eight per cent last year.

As Croatian media write, the Croatian economy has been exposed to enormous levels of stress caused by numerous factors over the past eighteen months, but it is showing resilience and its strong recovery is predicted for both this and next year, with GDP growth of 5.4 and 5.8 per cent, members of the IMF Mission said in a closing statement issued on Friday.

“For 2021 and 2022, a strong recovery is projected with Croatian economic growth of 5.4 and 5.8 per cent, respectively, driven by the recovery in the services sector, assuming the realisation of two-thirds of tourist arrivals from 2019 in 2021 and their almost full recovery in 2022, and investments that will be driven by large inflows of medium-term grants from the EU. In the medium term, GDP growth is projected to slow down to around three per cent,” the IMF mission said in a statement at the end of their visit to Croatia which takes place as part of regular consultations held with member states under Article IV of the IMF statute.

The IMF recalls that the coronavirus pandemic and two devastating earthquakes led to a decline in economic activity of 8 per cent in 2020 in Croatia due to reduced domestic and foreign demand, with a particularly large decline in tourism revenues, amounting to about 60 per cent on the annual level.

However, they also point out that generous support for fiscal and monetary policy, along with the appropriate easing of supervisory requirements, has helped mitigate the effects of the coronavirus pandemic.

At the same time, they note, Croatia’s financial position was somewhat eased by EU funds, which financed most fiscal support measures, and the CNB intervened in the foreign exchange market and eased tensions in the domestic bond market by buying government securities in the amount of approximately 5,5 per cent of GDP and lowered the reserve requirement and conducted repo operations.

Markets calmed down, especially after the establishment of a swap line with the European Central Bank (ECB) in mid-April 2020. They also referred to inflation, estimating that it is still low despite the recent increase, and they have also forecast its stabilisation at the level of 2 per cent in the year 2023.