Inflation Takes Over as Biggest Risk to Croatia’s Euro Plan

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Inflation now eclipses concerns over public finances as the biggest risk to Croatia’s hopes of adopting the euro in 2023, according to central bank Governor Boris Vujcic.

With a faster-than-predicted economic recovery helping to trim government debt and the budget deficit, the focus is on consumer-price growth that’s tracking the euro area for now but whose criteria for euro eligibility may be tweaked in 2022.

“Inflation at the moment presents the biggest uncertainty,” Vujcic said Thursday in an interview in the coastal town of Opatija. “For all other criteria I don’t see any risk to their fulfillment right now.”

Vujcic said he remains confident Croatia’s switch to the common currency will happen on time. 

The European Union’s newest member state is vying to join the euro region alongside Bulgaria and is expected to meet the remaining conditions ahead of schedule.

The economy’s post-pandemic recovery is a big factor: Vujcic on Thursday raised the central bank’s 2021 growth forecast for the second time this year, predicting expansion of 8.5% on the back of record tourism revenue and a consumer rebound. 

Before a slowdown next year, the bank sees inflation accelerating to 2.3%, driven by imported energy and food costs it deems largely beyond its control. Members of the euro area, where consumer prices jumped by the most in 13 years last month, will assess the inflation criteria sometime after May.  

“We’ll know then whether Croatia will remain within the parameters,” Vujcic said.

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