Romania will be ahead of Croatia next year in terms of purchasing power parity, warned Željko Lovrinčević in his review of economic expectations for 2016, symbolically illustrating the depth of Croatia’s problems.
His presentation focused primarily on the rampant public debt and deficit, issues for which there is still no policy to resolve them, as Jurčić noted in an earlier lecture. The precariousness of the situation is evidenced by the fact that GDP growth barely covers half of the interest on public debt, and the expected end of cheap money by the end of next year could further complicate its servicing.
The European Union continues its slow exit from recession, with a monetary policy that has meanwhile become neutral (neither restrictive nor expansive). Recovery is supported by low oil prices, a weak euro, and the expansive policy of the European Central Bank, so projections for the eurozone indicate growth of 1.6 percent this year and 1.8 percent next year. For Croatia, the expected stronger growth of major trading partners (Germany 1.9 percent, Italy 1.5 percent, Austria 1.5 percent, Slovenia 1.9 percent, and Hungary 2.2 percent) is particularly important. Although things at the EU level seem relatively promising, Lovrinčević noted that European problems are merely suppressed, not definitively resolved, largely due to monetary policy.
As for Croatia, growth of 1.1 percent is expected this year (1.4 percent next year and 1.7 percent in 2017), along with a still high deficit of 4.9 percent, which is expected to fall only slightly next year, by 0.2 percent. Due to the public debt that has recently been galloping (89 percent this year, 95 percent next), Croatia has the highest risk premium alongside Greece. The standard of living for citizens has fallen by about eight percent from 2011 to 2015, and public debt ‘eats’ into the little growth we achieve, which is why there is no convergence with other EU countries, explained Lovrinčević.
According to estimates from the European Commission, Croatia will have the largest deficit this year and in the next two years, Lovrinčević reminds. Taking everything into account, the scientific advisor at the Economic Institute believes that the euro will not be introduced in Croatia for at least another 20 years, while the risk premium and currency premium will remain an integral part of the system for many years to come.
Employment, one of the biggest problems of the Croatian economy, will grow slightly in 2016, by only 0.7 percent, or about nine thousand jobs. From next year, however, Croatia will face major challenges such as accelerating reforms, the effects of the migrant crisis, the formation of a new government and the adoption of the budget, the trend of emigration, and general euthanasia, as Lovrinčević calls it, of society (continuous decline in competitiveness, loss of faith in institutions, etc.), or intensified disintegration of society.
