• Recovery trumps politics, central bank Governor Vujcic says
  • Bonds supported by global liquidity boost, UniCredit says

Croatia’s central bank plans to raise its 2016 growth forecast next month, Governor Boris Vujcic said, acknowledging a faster-than-expected economic expansion that has helped temper the risks of a political crisis threatening to bring down the government.

The central bank expects no review to the newest EU member state’s budget this year and fiscal consolidation will continue, said Vujcic. The 2016 growth forecast, now at 1.8 percent, follows growth of 2.7 percent from January to March. Vujcic also said data showed that output in April and May was better than the bank had estimated.

That has helped investors ignore competing no-confidence votes against both Prime Minister Tihomir Oreskovic and his deputy Tomislav Karamarko, whose ruling Croatian Democratic Party wants to bring down the government and form a new ruling majority. Opposition parties have initiated a third vote to dissolve parliament and trigger early elections, which would cost the country time in passing economic measures aimed at healing an economy recovering from a record six-year recession.

“It’s not surprising that Croatian bonds are largely not affected by the political crisis,” Vujcic said in an interview in Dubrovnik, Croatia. “GDP growth is higher than markets expected.”

Croatia’s political crisis erupted last month over conflict-of-interest allegations against Karamarko over his ties to Hungarian energy company Mol Nyrt. Both Karamarko and the company deny any wrongdoing.

While the dispute prompted the government to withdraw a planned Eurobond offering last week, investors have largely brushed off the crisis. Part of the reason is that quantitative easing programs by the world’s big central banks have flooded the market with liquidity, according to Erik Nielsen, chief economist at UniCredit.

“There is so much global liquidity, and investors are getting used to political crisis in Europe,” he said.

The yield on Croatian dollar bonds maturing in March 2025 rose 5 basis points to 3.736 percent at 4:15 p.m. Monday. This compares to 3.843 percent on May 31.

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