ZAGREB, May 4 (Reuters) - Croatia’s central bank said on Thursday that the collapse of the ruling coalition and a debt crisis at the country’s biggest private firm Agrokor should have only a limited impact on the economy’s growth prospects this year.
Food producer and retailer Agrokor handed over control to the Croatian state last month after piling up debts of over $6.4 billion -- six times its equity -- as it rapidly expanded.
“We expect that a negative impact following the Agrokor crisis could amount to 0.3-0.4 percent of gross domestic product, depending on how the restructuring process develops,” state news agency Hina quoted the central bank governor Boris Vujcic as saying at an economic conference.
Agrokor is the biggest employer in the Balkans, providing jobs for some 60,000 people. Restructuring the company is seen taking up to 15 months.
Vujcic said local banks, most of which are owned by parents in other European Union countries, could see their profitability suffer as they set money aside to cover potential losses on loans to Agrokor.
“We see in the first quarter that the banks have begun to set aside reservations and their profitability will this year be considerably lower,” Hina quoted Vujcic as saying at the conference in the northern Adriatic resort of Opatija.
But high capital adequacy levels meant the stability of the banking system is not at risk, the central bank chief said.
The government is projecting growth of 3.2 percent this year
after 2.9 percent in 2016. The central bank, which sees this year’s growth at around 3 percent, said it would reassess its forecast in the coming months.
Vujcic also said that the ongoing political crisis should not have a strong effect on the economy.
Conservative Prime Minister Andrej Plenkovic is now trying to find new partners after a coalition between his HDZ party and centre-right junior partner the Most (“Bridge”) party collapsed.
Croatia, the youngest member of the European Union, suffered six years of recession from 2009 to 2014 that wiped out more than 12 percent of its overall output, and has started recovering in the last two years. (Reporting by Igor Ilic; Editing by Catherine Evans)