Croatia had another successful year in macroeconomic
terms, despite a number of challenges along the way. The
domestic economy continued to grow propped up by expanding
personal consumption and favourable exports performance.
Positive trends also continued in the labour market, with
declining unemployment, while inflation returned to positive
territory. The current account remained in surplus, supported
by growing exports, while external vulnerability indicators
have continued improving. Fiscal policy commitment to a
balanced budget ensured the continued decrease in public debt.
Expansionary monetary policy supported economic recovery and
improvement in financing conditions – interest rates
fell and lending recovered.
It is under such circumstances that the Croatian National
Bank remains watchful of potential external and domestic risks,
while at the same time maintaining prudent supervision of the
banking system. The limited impact of the crisis in Agrokor
– the largest non-financial private sector company
– on economic activity and financial stability
confirms the validity of this approach. Due to strict
monitoring of lending limits, banks' exposures to Agrokor and
related parties were less than 20% of their capital when the
Agrokor crisis started, and losses were immediately recognised
and provisioned for without major problems for the banks.
Having in mind the implications of potential policy
tightening in developed countries to financial conditions in
Croatia, in 2017 the central bank issued a recommendation to
banks to offer clients the possibility to refinance existing
loans with variable interest rates to fixed-rate loans. In
addition, the central bank started publishing a list comprising
all relevant information for consumers about the available loan
offers with fixed and variable rates, all with a view to
increasing consumer risk awareness and the predictability of
future debt repayments.
Finally, in 2017 the policy focus in Croatia shifted to
consider the prospects for adoption of the euro. Progress in
reducing Croatia's macroeconomic imbalances and the abrogation
of the Excessive Deficit Procedure, coupled with the continuous
strengthening of the Economic and Monetary Union's
institutional infrastructure and initiatives for the additional
deepening of integration processes, provided favourable timing
to initiate a comprehensive public discussion on euro adoption
in Croatia. The deeply rooted "euroization" of Croatia speaks
in favour of a stronger orientation towards euro adoption. But
that said, the euro adoption process will largely depend on the
success of our reform efforts to strengthen Croatia's economic
competitiveness and resilience. This requires a continued
effort in structural policy implementation in a number of areas
– from education, public administration and regulatory
framework to pension and health care systems.
Ambitious reform agenda is a precondition for improving the
fundamentals of Croatia's economy in general, irrespective of
the introduction of the euro. And the best time for the reforms
is now, while the sun is (still) shining on the global economy.
These efforts will continue to be supported by the prudent
monetary policy, which will remain committed to safeguarding
price and financial stability, thereby contributing to the
macroeconomic stability of the country.