Marić on EC forecasts: Full recovery expected only in 2022

Noting that the EC forecasts are worse than previous ones for the global, European, and thus Croatian economy, he said that only a few countries have a better forecast than before, and that Croatia is not among them.

For this year a decline of 10.8 percent is projected, and for next year a growth of seven and a half percent, and as he said, 'this is not a recovery in the shape of a V', in the sense that the recovery in 2021 will be at the rate at which the economy will fall in 2020.

– It is evident that a full recovery is expected only in 2022 – said Marić, adding that the components of the decline are primarily and exclusively related to covid-19, and that the forecasts rely on the assumption that the second wave of the pandemic would not bring a complete shutdown of the economy.

– However, at the same time, uncertainty is a variable that makes these projections even more complex – said Marić.

He stated that the Government still adheres to its projections from the budget rebalance and is analyzing fiscal and financial data. Thus, in June, he said, the decline in the amount of fiscalized invoices compared to June last year was around 16.5 percent.

Regarding budget revenues, VAT in June was even in surplus compared to June 2019, due to spillover from May, so this, he added, is not a realistic situation, but since the beginning of the year, tax revenues have fallen overall between 13 and 15 percent.

Speaking about the first moves of the new Government, he announced new tax reliefs, including in the area of corporate tax and income tax, but 'in phases thereafter and indirect taxes such as value-added tax'.

He added that a reduction in income tax rates from 36 to 30 and from 24 to 20 percent is planned, and when asked whether citizens would feel this immediately in their salaries, he replied that unlike the measure for youth from the previous round of tax reform, which they felt after a year, citizens would feel this immediately upon implementation. When asked by journalists if this means that about a million citizens will have higher salaries already in the first year of the new government’s mandate, he replied 'that’s right' and that, regarding the timeline, everything will be defined in the government program.

Marić did not definitively answer the question of whether he will remain Minister of Finance, stating that the President of the HDZ and the future Prime Minister will inform the public about that.

The European Commission on Tuesday further increased its estimate of the decline of the Croatian economy to 10.8 percent this year, and for next year, it predicts a partial recovery and growth of 7.5 percent. In the spring economic forecasts, the first economic forecasts after the outbreak of the coronavirus pandemic, published on May 6, the Commission estimated that Croatian GDP would decrease by 9.1 percent this year and grow by 7.5 percent next year. 

The Commission emphasizes that in the first quarter of this year, the economy fell by 1.2 percent year-on-year, and an even greater decline is expected in the second quarter.

– Available high-frequency indicators and sentiment indicators suggest that the lowest economic activity may have been reached in April, after which a sharp recovery may follow in May and June – states the Commission.

The EC reiterates its assessment that the Croatian economy entered the corona crisis in significantly better shape than in the 2008 crisis, but that due to the significant decline this year, it will remain below the level prior to that crisis. Domestic demand is expected to be the main driver of the decline in GDP in the first half of the year and the subsequent recovery.

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