The Croatian economy will fall by 9.2% in 2020 and grow by 5.2% in 2021, chief economists at the four largest Croatian banks predict in the latest report by the Croatian Bank Association (HUB) published on Monday.

The middle of 2020 marked the peak of the wave of forecasters’ pessimism about global economic movements for this year and next, and projections released in the past few weeks are more favourable than previous ones, the report notes.

The Croatian government, too, has revised upward its projection of economic downturn for this year from -9.4% to -8.0%, However, the expected recovery in 2021 with 5% growth will not be strong enough to ensure a quick return to 2019’s levels, HUB says, adding that Croatia fits into a wider European trend in that regard.

The four chief economists expect the Croatian economy to shrink by 9.2% on average in 2020 and to rebound by 5.2% in 2021. HUB says that this difference of one percentage point from the government’s forecast has no practical significance.

The difference is due to a sharp decline in investment and a slightly higher than expected fall in exports than the government’s projection. The greatest optimist among the four economists expects a GDP fall of 8.5%, while the greatest pessimist expects a fall of 9.6%.

All four economists expect the period of the historically lowest interest rates to continue and the euro-kuna exchange rate to remain stable. Next year they expect a slightly stronger kuna against the euro and a further drop in government bond yields.

However, the economists are pessimistic about the recovery of the labour market. They expect the average real wage to increase in 2020, but they don’t expect the unemployment rate to start falling already in 2021. They projected the budget deficit at 3% of GDP.

The economists expect Croatia’s recent entry into the European Exchange Mechanism (ERM II) to help increase the country’s credit rating, reduce risks, ensure exchange rate and financial stability, cut borrowing and other costs, reduce bank revenues from FX trading, and boost investment, reform and fiscal consolidation.

As for the actual adoption of the euro, one economist expects this to happen in 2023, two think this will happen in 2024, while one is undecided between the two years.

HUB predicts that it will take two to three years for economic activity to return to 2019’s levels.