June 7 (SeeNews) - Croatia's annual inflation could exceed expectations and stand at around 9% in 2022, as the war in Ukraine further increases inflationary pressures caused by the Covid pandemic, central bank governor Boris Vujcic said.
“Unfortunately, the current crisis is geopolitical, we have a large-scale war in Europe, which definitely impacts economic prospects and projections. On the other hand, Croatia will, following the positive assessment of the European Commission, enter the eurozone on January 1, 2023. The progress on this path and the confirmation of Croatia's readiness [to join the eurozone] by the European Commission are helping us significantly to face the challenges and this new crisis,” Vujcic said during a business conference on Monday, as quoted in a central bank statement.
Last week, the European Commission and the European Central Bank gave positive assessments of Croatia's progress towards euro adoption as of the beginning of next year. The European Union's Council will make a final decision on the adoption of the euro in Croatia in the first half of July, following discussions in the Eurogroup and in the European Council, and after the European Parliament has given its opinion, the Croatian central bank has said.
In April, the central bank raised its projection for the country's average annual inflation in 2022 to 5.4% from 3.5% - 4% it forecast in February, reflecting direct and indirect unfavourable economic effects of the Russian invasion of Ukraine.
Croatia's average annual inflation accelerated to 2.6% last year from 0.1% in 2020.
Inflation was already accelerating even before the Russian aggression in Ukraine primarily as a consequence of strong growth of demand following the pandemic, Vujcic said.
“The onset of the conflict in Ukraine increased pressure on prices of energy and cereals - products that Ukraine and Russia export. This led to lower projections for economic growth in central and Eastern Europe, which are more closely linked to Russia and Ukraine than western Europe,” Vujcic explained.
The IMF's latest forecasts put Croatia's economic growth at 2.7% this year but the economic expansion could be bigger if the energy crisis does not widen this autumn, he said. However, a growing energy crisis could lead to recession in some of Croatia's main trade partners, and consequently, slow down the Adriatic country's growth, according to the central bank governor.
Croatia's economic output grew by a real 10.2% in 2021, after a drop of 8.4% in 2020.