country profile
Croatia
0.7%
3.3%
Inflation will be 3.3% in 2013.
The economy is expected to contract by 0.7% in 2013.
Croatia’s economy faces its fifth consecutive year of contraction or no growth in 2013. Weak external demand, continuing debt reduction by households and businesses, and rising unemployment hold back the economy. Unemployment is in double digits but falling.
The 2013 budget deficit has been revised upward twice as spending rises. Croatia joined the EU in July 2013. Accession can bring up to 2.0 billion euro of the EU funds to upgrade the economy.
Overview of the economy
Based on most economic indicators, Croatia performed better than throughout most of the past decade. The economy is open to trade and capital flows, and privatisation is well advanced, although uneven. Croatia’s openness left the country especially vulnerable during the Great Recession. Private sec-
tor credit declined sharply while weaknesses in consumption and investment outweighed gains in exports. Later, because of its narrow export base and weak competitiveness, Croatia was unable to take full advantage of the economic rebound among its trading partners.The economy has either stagnated or contracted for the past four years. Both domestic demand and investment weakened during this period while the large public sector also imposed a drag on growth. Public agencies and enterprises have not been subject to strict financial discipline and state aid in various forms exceeds that in other Central and Eastern European countries.
Economic prospects
Real GDP is expected to contract by 0.7% in 2013 after a contraction of 2.0% in 2012. Weak external demand, continuing debt reduction by households and businesses, and rising unemployment hold back the economy. Borrowing costs are also expected to rise now that Croatia‘s debt has been downgraded to junk status. This will be the fifth consecutive year of contraction or no growth. Growth will be subdued in 2014. Inflation will be 3.3% in 2013, down from 3.4%
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in 2012. Unemployment was 15.9% in 2012 and it will remain at this level in 2013. The jobless total will remain high in the medium term. Youth unemployment is thought to be one of the highest in the EU. The number of employed workers is expected to continue its gradual fall in 2014. Consumption is held back by household debt owed which, as a share of GDP, is one of the highest in Central Europe. A weak labour market also depresses growth of disposable income. The real value of private final consumption fell by 2.9% in 2012 and a decline of 1.3% is expected in 2013. Croatia‘s public investment programme fell short of its target for 2012 but was still about 25% higher than in 2011. An ambitious programme of public investment is planned for 2013 but timely realisation of these investments will be critical.
Evaluation of market potential
Growth should resume in the medium term but is not expected to reach pre-crisis levels. The competitiveness of Croatia’s external sector remains in doubt. Croatia’s Economic Recovery Programme is aimed at addressing