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HNB revises growth forecast from 2.8% to 3% 

20.07.2017  14:02
The Croatian National Bank (HNB) has revised its growth forecast for the Croatian economy from 2.8% to 3% primarily owing to the expectation that exports will continue to increase and growing investments, Governor Boris Vujcic said on Wednesday.

The central bank expects exports to increase in 2017 by 6.6% on the year while imports are expected to grow by 7.5% and investments by 6.1%, a rate that hasn't occurred since the start of the recession.

The HNB estimates that the potential negative effect of the crisis in the Agrokor food concern could be about 0.3% but that the risk is not expected to be felt this year, Vujcic said.

On the other hand, growth could be even faster than the HNB's latest projections if the results of the tourism season and the related exports are better than expected.

Vujcic underscored that not only tourism, namely the export of services, was growing but that the export of commodities, too, was growing rapidly and achieving record rates.

Positive trends are also evident in investments, encouraged by the inflow of European Union funds, and that trend could continue given an increase in the number of loans being taken by companies for investment purposes.

"Most of these loans in the first half of this year referred to the tourism sector, which is not surprising considering the growth in tourism, however, it is concerning that we aren't seeing a growth of that intensity in other sectors," Vujcic added.

Households are currently taking out consumer and cash loans, which are increasingly denominated in the kuna currency. In some segments, the share of kuna-denominated loans exceeds 40%.

Stronger exports and investments strongly encourage appreciation pressure on the domestic currency and the HNB has had to intervene more intensively on the foreign currency market.

"We are constantly buying euros due to the strong appreciation pressure which is primarily the consequence of the surplus Croatia is achieving in its capital account," he said.

"Had the HNB not strongly intervened in the last seven-eight months, the exchange rate would have appreciated to a level we haven't seen since 1993," he said, adding that this showed that there was no need to devalue the kuna to assist exporters as a strong internal devaluation had happened in the meantime, making the economy more competitive.

The banking sector is expected to continue to be affected by the crisis in Agrokor and its profitability this year could be significantly lower compared to last year, as evidenced by a 70% drop in profitability in Q1.

In the medium term, however, all these risks aren't as strong as the risk of not implementing structural reforms or strengthening the efficiency of public administration, the judiciary or the health sector, without which any stronger growth cannot be expected, the HNB believes.

Source: HINA