Ozana Nadoveza, Advisor at the Croatian National Bank and Assistant Professor at the Faculty of Economics and Business in Zagreb, presented the paper The interplay of supply and demand shocks: measuring potential output in the COVID-19 pandemic that was published in the journal Public Sector Economics. The paper’s co-authors are Lovorka Grgurić and Nina Pavić, both working at the Croatian National Bank as Advisor and Head Expert Associate respectively.

 

Ozana Nadoveza presented the potential methods for modelling the effects of the pandemic on Croatia’s potential GDP and highlighted the problems with estimating potential GDP under the unprecedented macro-economic shock conditions. The estimate implies that around 40% of the total GDP drop in 2020 can be explained by the supply shock, while the rest can be assigned to negative demand shock.

According to estimates made by CNB’s analysts, potential long-term GDP growth rates will amount to 1.8%. Capital is expected to contribute the most to the growth due to optimistic forecasts regarding investment trends in the coming years related to EU funds and the reconstruction of Zagreb. The long-term contribution of the paper might be neutral, as the drop in working-age population and working hours could be compensated through positive contribution of the natural unemployment rate drop and higher participation on the work market.

The presentation was organised by the Institute of Public Finance and the Croatian National Bank. The recording and the presentation (both in Croatian) are both available online.