The economic impact of covid-19 in Croatia

Ante Kristo

The covid-19 in Croatia according to assessment of the health system is tackling the health issue. As of 4 May, the infection curve seems to be flattening. With a decrease in new cases compared to previous weeks. The Government has stated that the epidemiologic situation is under control. Data in this report is gathered from the OECD Croatia covid-19 report and official resources.

Croatia’s unemployment rate edged down to 8.6 percent in March of 2020 from 8.9 percent in the March of 2019. The number of unemployed people decreased by 2.340 thousand to 143,461. In February, the jobless rate was lower at 8.3 percent. See the chart below of unemployment in Croatia.

Source: Trading Economics

Official data suggests an increase in registered unemployment for the first time since 2013. Due to market instability, the HRK/EUR exchange rate depreciated. As of 27 April, the Croatian Kuna has regained some of its lost value.

Source: European Central Bank

Investor panic did damage to the Croatian financial market, as the Zagreb Stock Exchange’s indicator, Crobex, lost over 32% of its value from 19 February to 19 March. The Crobex resumed growth the following two weeks, possibly due to investor confidence in Government measures and their ability to limit economic damage.

Government measures during covid-19 in Croatia

Croatia as part of many European countries introduced to the public measures due to the covid-19. Moreover, on 16 March, the Government closed all educational institutions. Distance learning for primary education is delivered through public service broadcasts. Primary education is expected to partially resume as of 11 May.

The covid-19 in Croatia will leave an impact on how people will act in the new normal. Further on, Croatia announced new restriction measures to the public on 24 March and introduced a ban on travel between cities.

As of 20 April, restrictions on movement inside individual counties have been lifted for most counties. The government plans to begin easing the restrictions in three phases. As of 27 April, businesses selling goods and services may reopen as long as they are not inside shopping malls.

As of 4 May, service industries may reopen, including those that involve close human contact. Country-wide public transportation and domestic air traffic are expected to reopen on 11 May.

In addition to supporting measures, on 20 March, the Croatian National Bank (CNB) adjusted its regulatory framework and monitoring activities in order to support the liquidity of financial institutions.

Monetary and fiscal measures for the covid-19 in Croatia

On 17 March, the Government announced measures of a combined worth of over HRK 30 billion (around EUR 3.9 billion) to support the economy is coping with the effects of the pandemic.

Also, the Government has promised interest-free loans to local organs and other public bodies whose revenue will be affected by the delay in payments.

The Government set up dedicated accounts for the collection of donations and the start of a campaign to assist with relief efforts related to the Zagreb earthquake (Together for Zagreb), and the COVID-19 pandemic (Croatia Against Coronavirus).

One additional fiscal measure to support firms, Employment Agency has made available special subsidies to employers. These include salaries of full-time and part-time workers in accommodation, food and beverage,
transportation and storage and other sectors in which workers are prevented from attending work due to confinement measures.

The Government increased this support from HRK 3 250 per worker to HRK 4 000.

Within the April package, the Government announced an exemption on payment of income tax and contributions for entrepreneurs with an annual income of less than HRK 7.5 million (representing 93% of firms).

The overview

Prior to covid-19 in Croatia, GDP growth was accelerating, with a growth rate of 2.9 in 2019 (after a slight slowdown from 2017 to 2018). Unemployment was low, registering at 6.1% in January 2020. At the end of 2019, the Government budget ran a surplus of 0.9% GDP.

Croatia’s economy strongly relies on the tourism sector, which represents around 20% of GDP. This could bring economic difficulties as the tourism industry is suffering worldwide as a result of the pandemic. Efforts to support both firms and employees in the sector Government recently announced. Difficulties related to reduced export of goods are also expected.