At today's session, the CNB Council, chaired by Governor Boris Vujčić, examined recent economic and monetary indicators, a report on international reserve management and financial operation of the central bank in the first half of the year and a report on the banking system condition in the second quarter of 2013.
The first estimate of the annual rate of change in real GDP for the second quarter of 2013 published by the CBS (-0.7%) and a seasonal adjustment of the CNB, point to a very small economic growth in the second quarter of the year compared to the first three months of the year. Such developments can be attributed primarily to the growth in exports of goods and services, most notably exports of ships, tourist services and food products to the CEFTA market (which Croatia exited following EU accession), associated with the efforts to mitigate the effects of application of customs restrictions introduced in early July. The same period also saw a one-off sharp increase in imports, mainly owing to changes in excise duties and terms of international trade that were to be introduced following Croatia's accession to the EU. The available high-frequency indicators suggest that the third quarter might also see a very small growth.
Inflationary pressures in the domestic economy were again subdued. Consumer prices in July fell by 0.6% from the previous month, driven mostly by a seasonal fall in the prices of clothing and footwear and fruit and vegetables. The fall in consumer prices in July was somewhat offset by an increase in the price of tobacco as a result of increased excise duties. Expansive monetary policy orientation, aimed at maintaining high domestic banking system liquidity, continued into June, July and August, with overnight interest rates holding steady at low levels. Developments on the international level were characterised by increased risk aversion, resulting in increased risk premiums for most of the European emerging market economies (the biggest increase in premiums were seen in Hungary and Croatia). Financing costs of most parent banks of the largest domestic banks also rose slightly.
Monetary developments in June and July were marked by an increase in total liquid assets, driven by a seasonal growth in money and savings and time deposits. The increase in total liquid assets was accompanied by a seasonal improvement in the foreign position of credit institutions, i.e. an increase in their foreign assets. The placements of credit institutions (the central government excluded) held steady on an annual level, with corporate placements rising slightly and the household sector continuing to deleverage. Placements to the government continued to grow. A sharp fall in bank profit seen in the previous year and in the first half of this year was primarily the result of bank credit portfolio worsening, i.e. growth in non-performing loans and persistent low level of credit activity.
Consolidated central government revenues declined 1.1% in the first six months on an annual level, while consolidated central government expenditures (cash basis) rose 7.9% from the same period in the previous year, with the total fiscal deficit during that period almost reaching the amount planned for the whole of 2013. The largest negative contribution to developments in total revenues came from profit tax revenues, mostly due to the absence of taxation of reinvested earnings from January this year, and social contribution revenues, in contrast with increased revenues from value added tax as a result of the introduction of fiscal cash registers and increased imports of goods in June. A sharp increase in expenditures was largely due to debt payments in the health sector and earlier payments of subsidies to farmers.
At this session, the CNB Council approved the decision of the supervisory board of Raiffeisen stambena štedionica d.d., Zagreb to appoint Hans Christian Vallant as chairperson for another term and Franjo Franjić as member of the management board for another term and with the decision of the supervisory board of Wüstenrot stambena štedionica d.d., Zagreb, to appoint Ivan Ostojić as member of the management board for another term.
At today's session, the CNB Council also approved the acquisition of a qualifying holding of over 20 % in the initial capital of Tesla štedna banka d.d., Zagreb to Autonomous Province of Vojvodina, i.e. the Government of the Autonomous Province of Vojvodina, as a legal successor to the Development Fund of the Autonomous Province of Vojvodina, recent shareholder of this savings bank. Hypo SEE Holding AG, Klagenfurt, was granted an approval for the acquisition of a qualifying holding of over 50% in the initial capital of Hypo Alpe-Adria-Bank d.d., Zagreb.