Vujčić: Decline in Foreign Demand for Real Estate in Croatia

The Governor of the Croatian National Bank Boris Vujčić stated on Thursday that he expects a further decrease in the annual inflation rate, and that the targeted level of two percent could be achieved as early as this summer, while economic growth this year could exceed the projected 3.2 percent.

Vujčić asserted at the Financial Market conference held in Opatija that Croatia has the second lowest cumulative inflation rate among Central and Eastern European countries, following Slovenia.

The HNB Governor expects the inflation rate to drop to two percent during the summer, despite the anticipated price increases, noting that the expected price increase is less than last year, thus the annual inflation rate is lower.

He mentioned that the economy could grow more than the projected 3.2 percent this year due to better performance in the first quarter compared to projections. This growth is significantly higher than that of our trading partners, and we expect their economies to start recovering more strongly as well, he said.

According to him, inflation in Croatia has been less driven by rising energy prices than in Western European countries, but has been strengthened by a greater increase in food prices than in the Eurozone. In Croatia, among the components of inflation, only the current inflation of service prices is still significantly far from the long-term average inflation rate, Vujčić noted.

Low unemployment and strong demand for labor are driving the trend of real wage growth, while profits alleviate domestic inflationary pressures based on labor costs, and the reduction in import prices supports this, the governor emphasized.

Foreign tourist demand strongly influences service prices, contributing to higher inflation in the tourism sector, he noted.

He stated that the rise in export prices after the pandemic has offset the negative effects of high import prices for energy, thus improving trade conditions.

He said that interest rates in Croatia have significantly decreased since the introduction of the euro and are now at the Eurozone average, while in countries outside the Eurozone they are significantly higher.

When asked about the situation in the real estate market, he said that foreign demand for real estate in Croatia is declining.

– This reflects the tightening of the monetary policy of the European Central Bank, as foreigners mainly borrow abroad to purchase real estate, and interest rates there have risen, leading to reduced interest in purchasing real estate. I expect this to also affect the real estate market in Croatia – said Vujčić.