Croatia's real Gross Domestic Product (GDP) continued to grow in Q1 2022, but the war in Ukraine and sanctions against Russia will have a negative effect on the economy, the Croatian Central Bank (HNB) said on Friday in a statement from the HNB Council session.

According to the press release, the HNB Council discussed current economic and financial trends, adopted the Report on International Reserves for 2021 and made several decisions within its remit.

The HNB recalled that in Q4 2021 the real economic activity remained at the level from the quarter before that. The annual growth rate declined due to the gradual disappearance of the impact of low economic activity in 2020, which was caused by the pandemic outbreak, but it still remained very high at 9.7%.

“Although the available monthly data indicate growth of the real GDP on a quarterly and annual basis in Q1 2022, future trends will be negatively affected by the conflict in Ukraine and sanctions against Russia,” the central bank said.

It said that at the beginning of the year, employment continued to rise and unemployment continued to fall.

“At the same time, nominal wages continued to rise, but their purchasing power was reduced by the rise in consumer prices. The annual consumer price inflation rate accelerated from 5.5% in December to 5.7% in January, mostly driven by higher prices of processed food products,” the HNB said.

Free reserves of banks reached their highest recorded levels, the HNB added.

Bank lending remained almost unchanged from the previous month, and its annual growth rate, according to HNB’s data, decelerated from 3.9% in December last year to 3.6% in January this year.

Such trends are primarily a reflection of a deceleration in the growth of lending to companies (from 2.3% in December to 1.6% in January), and significantly less to households (from 4.5% to 4.4%). At the same time, the growth of housing loans continued to slow down ahead of a new round of subsidies, while the growth of non-purpose cash loans accelerated, the HNB said.