Croatia's euro area accession and the related removal of the foreign exchange risk has already boosted investor interest in Croatia, Croatian Central Bank (HNB) Govenor Boris Vujcic said at the conference on 10 years of Croatia's EU membership, held in Zagreb on Tuesday.

Addressing the event, organised by the media company Bloomberg Adria, Vujcic said that euro area entry has had a positive effect on exports and on the competitiveness of Croatian companies, increasing the attractiveness of the national economy, owing to, among other things, lower financing costs, with the average interest rate on loans for businesses being somewhat lower than the euro area average.

It is estimated that companies annually save around €160 million in business costs owing to the removal of transaction expenses.

What will become more visible in the future is that Croatia has become a more attractive place for foreign investments, also owing to the removal of the foreign exchange risk, and entry to the Schengen area, Vujcic said.

Economic growth largely based on services

Croatia has step up convergence towards the EU development average and for the process to be even faster, it needs to continue with structural reforms, Vujcic said, noting that there is still a lot of room for the improvement of state institutions.

Earlier in the day, the HNB revised upward the estimate of Croatia’s GDP growth for 2023 from 1.5% to 2.9%, basing its latest forecast on private investments and improved expectations with regard to public investments financed from EU funds, as well as the impact of this year’s successful tourist season.

Vujcic stressed that economic growth in Croatia following the coronavirus pandemic has been largely based on services, with the share of revenue from tourist services in GDP having gone up only in Croatia.

On the other hand, even though investment growth is solid, the share of investments in GDP is below that of most comparable countries, he said, adding that a large contribution to investments is given by the public sector, mostly as a result of EU funds use.

Speaking of the real estate market, he said that a price drop is already visible in the euro area but still not in Croatia, even though there has been a marked decrease in the number of transactions, which usually precedes price stabilisation and decline.

The benefits of Croatia’s EU and euro area entry were also underlined by the management board presidents of Erste Bank, Hrvatska Postanska Banka (HPB) and OTP Bank – Christoph Schoefboeck, Marko Badurina, and Balazs Békeffy respectively.

Schoefboeck said that the perception of Croatia has improved significantly in recent years, noting that a positive effect of euro area entry is the fact that loan interest rates in Croatia are significantly lower than in non-euro area countries in its neighbourhood.

Badurina said that compared to the period of a month before EU accession, interest rates on housing loans for households are today down by five percentage points, with similar trends being present in the business sector as well.

Békeffy said that a small economy like Croatia would have a hard time functioning without the EU and the euro area, noting that with Croatia’s euro area entry banks have lost a part of revenue in the short term but have gained a lot, including stability.

The State Secretary at the Sea, Transport, and Infrastructure Ministry, Tomislav Mihotic, said that the EU’s cohesion funds are being used for numerous projects that are being implemented in Croatia with the aim of reducing regional development inequalities.

He recalled that in this decade, Croatia has around €25 billion from various EU funds at its disposal for development and reforms.