GDP falls about 9 percent in 2020; annual growth about 5 percent in 2021

Published: 17/12/2020

CNB Governor Boris Vujčić presented today the monetary policy projection for 2020 and 2021. The Governor said that real gross domestic product (GDP) recovered partially in the third quarter, following a sharp fall in the second quarter. However, the available data for October, as well as the unfavourable development of the epidemiological situation, point to a strong slowdown of the recovery in the last quarter that might also continue in the beginning of 2021. Therefore, the decrease in real GDP at the level of the whole year might be slightly larger than the most recent projections and reach 8.9 percent of GDP. It is expected that in the course of 2021 the pandemic will be relatively successfully controlled and, if an effective vaccine is deployed, a gradual recovery of economic activity might begin in the second quarter and the annual growth of GDP in 2021 might stand at 4.9%.

Although employment might fall by 1.5% and the unemployment rate might increase to 7.5% of the labour force, the labour market reaction to the decline in economic activity in 2020 was mitigated by the strong measures of the Government of the Republic of

Croatia to preserve employment. For this reason, the recovery of the labour market in 2021 might also be relatively moderate, the Governor said. The inflation rate is expected to slow down to 0.2 percent in 2020, mostly due to the significant decrease in the prices of energy (primarily of refined petroleum products) from the previous year, and inflationary pressures might also be subdued in 2021, in which an inflation rate of one percent is anticipated. The acceleration of inflation would mostly be the result of the rise in energy prices.

In foreign economic relations, following a noticeable decrease in the current and capital account surplus in 2020, primarily due to the sharp fall in tourism revenues, the surplus is expected to grow in 2021, mostly spurred by the expected recovery of tourist activity.

The CNB will continue to maintain the stability of the exchange rate of the kuna against the euro and support favourable domestic financing conditions, the Governor added.