Bulgarian Council for Economic Analyses

A new In Focus analysis by the Bulgarian Council for Economic Analyses, authored by Plamen Nenov, compares the economic dynamics of Slovenia and Croatia—two countries with similar characteristics—following their respective adoption of the euro. In both cases, after joining the euro area, each country experiences faster growth in GDP, employment, employee compensation, consumption, and investment relative to the other country. In other words, when Slovenia adopted the euro, its economy began to grow faster than Croatia’s. When Croatia adopted the euro, its economy started catching up with that of Slovenia. No inflationary effect is observed in Slovenia, while in Croatia there is a moderate increase in prices—significantly smaller than the growth in real labor incomes.

These trends cannot be interpreted as definitive proof of a causal relationship, but they do indicate a possible direction of impact and are therefore important to the public debate about the potential economic effects of adopting the common currency in Bulgaria. The analysis highlights the need for close monitoring of economic activity over the coming quarters and readiness to implement a targeted set of policies, including a more conservative fiscal stance to cool the economy and macro-prudential measures to curb the pace of credit growth.

The analysis is available here.