The Croatian National Bank (HNB) expects the economy to have contracted by 8.9% this year, and to be heading for an expansion of 4.9% in 2021, according to the Monetary Policy Projection for 2020 and 2021 presented by HNB governor Boris Vujcic on December 17. 

According to Vujcic, real GDP partially recovered in the third quarter, after a sharp decline in the second quarter. However, the available data for October, as well as the unfavourable development of the epidemiological situation, indicate a significant slowdown in the recovery in the final quarter, which could continue early next year.

While Croatia experienced a severe second wave in the autumn, the HNB forecasts that the pandemic will be “relatively successfully controlled” in 2021. “With the application of an effective vaccine, a gradual recovery in economic activity could begin in the second quarter, and annual GDP growth in 2021 could be 4.9%,” the bank said. 

It forecasts employment could fall by 1.5% and the unemployment rate increase to 7.5% this year. This could have been worse, had it not been for the government stimulus and support measures. Therefore, the recovery of the labour market in 2021 could be relatively mild, Vujcic said. 

In 2020, the inflation rate is expected to slow to 0.2%, mainly due to a significant reduction in energy prices (especially oil products) compared to the previous year, and inflationary pressures are seen as subdued in 2021, while the inflation rate is expected at 1%.