Macroeconomic environment (continued)
Group Raiffeisenbank Austria d.d., Zagreb
6
Macroeconomic environment (continued)
The
free
movement
of
population
strengthened
the
demand
for
travel-related
services,
which
had
a
favourable
effect
on
growth
rates
in
economies
predominantly
focused
on
the
supply
of
services,
such
as
Croatia.
The
escalation
of
the
war
in
Ukraine,
the
intensification
of
geopolitical
tensions
and
increased
inflation
did
not
affect
the
demand
for
tourist
trips
to
Croatia
significantly.
Considerable
growth
was
achieved
in
the
indicators
of
the
number
of
tourist
arrivals
and
overnight
stays,
as
well
as income from the indirect export of services.
In
the
first
half
of
the
year,
growth
projections
based
on
a
temporary
increase
in
prices
due
to
interruptions
in
supply
chains
still
prevailed,
but
in
the
second
half
of
the
year
it
became
clear
that
inflation
will
not
be
contained
without
a
strong
change
in
money
supply.
With
the
increase
in
the
cost
of
financing
towards
the
year
end,
economic
activities
slowed
down,
and
the
first
indicators
on
the
movement
of
industrial
production
and
retail
trade
in
the
last
months
of
2022
entered
negative
territory.
Gross domestic product, real growth rates, in %
Sources: CBS, Raiffeisen Research
A
highly
euroized
domestic
financial
system
is
significantly
dependent
on
developments
in
the
euro
area.
The
ECB
interest
rates
remained
at
historically
low
levels
until
the
end
of
the
first
half
of
2022.
The
interest
rate
on
overnight
deposit
with
the
ECB
was
-0.5
percent,
and
the
interest
rate
on
main
refinancing
operations
was
0.0
percent.
However,
borrowing
prices
on
the
financial
markets
began
to
rise,
and
thus
market
participants
anticipated
the
inevitability
of
a
turn
towards
a
restrictive
monetary
policy
in
conditions
of
growing
inflationary
pressures.
The
expected
turn
in
the
monetary
policy
followed
in
the
second
half
of
the
year.
On
four
occasions,
the
ECB
increased
the
interest
rate
on
main
refinancing
operations,
which
reached
2.5%
at
the
end
of
the
year,
while
the
interest
rate
on
deposits
was
increased
to
2.0%,
with
an
upward
tendency
in
the
following
year
as
well.
The
tightening
of
monetary
policy
should
also
take
place
through
the
policy
of
managing
or
reducing
the
ECB
balance
sheet.
In
the
previous
year,
programs
for
the
purchase
of
securities,
which
created
additional
liquidity
during
the
period
of
monetary
easing,
were
stopped.
However,
the
withdrawal
of
liquidity
through
the
collection
of
overdue
securities
without
the
possibility
of
refinancing,
as
well
as
the
sale
of
the
ECB's
portfolio,
still
did
not
start
in
the
previous
year.
Movements
on
the
external
financial
markets
spill
over
to
the
capital
markets
in
Croatia.
In
the
middle
of
the
year,
all
three
leading
agencies
anticipated
Croatia's
entry
into
the
euro
area
by
raising
its
credit
rating.
According
to
two
agencies
(Fitch
and
S&P),
Croatia
is
at
the
highest
level
of
the
adequate
credit
quality
class
(BBB+).
Moody's
returned
the
investment
level,
so
Croatia
is
suitable
for
investment
even
for
more
strictly
regulated
investors
such
as
the
European
pension
funds.
Positive
changes
in
the
credit
rating
were
incorporated
into
the
prices
of
financial
instruments
during
the
period
of
unfavourable
developments
on
the
financial
markets,
so
they
had
the
effect
of
mitigating
the
increase
in
the
borrowing
cost
for
Croatian
issues. Although mitigated, the rise in interest rates in the euro area increased the cost of financing.
