Boris Vujčić.jpg
Photograph: HINA / Zagrebačka burza / mm

The Croatian National Bank (HNB) governor Boris Vujcic has said that Croatia's economic growth intensified at the start of 2015, which has prompted the central bank to revise upward the its initial projection of Croatia's growth of 0.5% to 1.2% for this year.

After six consecutive years of economic decline, the Croatian economy has started recovering, the governor said at a conference of the Zagreb Stock Exchange and funds in the northern Adriatic resort of Rovinj on Thursday.

"The growth intensified at the beginning of 2015, notably in the second quarter, on the back of a strong increase in the exports of commodities and services and on the back of more favourable trends in the domestic demand," Vujcic said. He expected those positive trends to continue in the remainder of this year.

The HNB also revised upward the inital growth forecast for 2016 from 0.9% to 1.5%.

The improved forecasts reflect a marked rise in the commodities' and services' exports thanks to extremely good results in the tourism sector, the governor said.

He pointed out first signs of a turnabout in capital investments, however, he warned that investments had been reduced in cumulative terms by one third compared to the last year before the outbreak of the crisis and that the pre-crisis levels would not be reached in the medium term.

Speaking of increasing uncertainties on financial markets, spurred by the adoption of the legislation on conversion of some types of loans and by partial write-off of loans indexed to the Swiss franc, Vujcic recalled that the national currency depreciated against the euro in mid-September.

Therefore, the central bank has implemented a set of measures "to ease the pressure on the foreign currencies' and money markets", he said.

In this context, he recalled that the HNB had intervened in the foreign currencies market to ensure 270 million euros as an additional solvency in foreign currencies, and also facilitated a flow of 3.4 billion kuna on the market.

In late September, the central bank reintroduced the regular repo auctions at the interest rate of 0.8% in a bid to improve the liquidity in the banking system.

To this end, a few days ago, the central bank decided to lower interest rate on Lombard loans 5% to 2.5% annually.

"Thanks to comprehensive and resolute measures of the HNB, a surplus in liquidity is currently some 8.5 billion kuna, considerably higher than the average for the first nine months of this year, when it was around 6.4 billion kuna," Vujcic boasted.

He said that the central bank would continue pursuing an expansionary monetary policy to the extent which would not be detrimental to the exchange rate of the kuna.

Vujcic said that sustainability of the country's public debt remained the biggest macro-economic risk for the domestic economy, in light of the fact that Croatia had the highest projected level of the deficit in the European Union, and with the highest level of public debt compared to other countries in central and east Europe.

The conference in Rovinj brought together some 350 participants from Croatia and abroad.

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