Croatia flag Croatia: Economic and Political Overview

The economic context of Croatia

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

After becoming the 28th member state of the EU on July 1, 2013, the Croatian economy was only able to return to growth in 2015: since 2008, the country had experienced six consecutive years of economic recession, with the GDP falling by 12% (EU data). After accelerating in 2019, the economy was severely hit by the crisis linked to the covid-19 pandemic (-8%, one of the worst-hit countries in the EU). Nevertheless, the recovery of Croatia’s economy resumed in 2021, mostly supported by strong household consumption and a better-than-expected performance of the tourism sector: the IMF estimated a growth of 6.3% for the year as a whole. Domestic demand is expected to be the main engine of growth throughout the forecast period, coupled with government expenditure supported by the EU Recovery and Resilience Facility (amounting to 5.3% of GDP overall in the period 2020-23. Hence, GDP growth is forecast at 5.8% this year (reaching the pre-pandemic level) and 4% in 2023, although downward risks linked to the recrudescence of infections persist, due to the country’s relatively low vaccination rates.

Croatia's public debt stood at around 87% of GDP in 2021, significantly higher than in 2019 (72.8%) as a consequence of the necessary government measures to counter the pandemic and the consequent economic downturn. The normalization of the situation should help reduce the ratio over the forecast horizon, at 83.6% and 80.3% this year and the next, respectively (IMF). In 2021, the general government deficit was estimated at 3.5% of GDP (from 5.7% in 2020), thanks to the strong economic recovery and the gradual phasing out of support measures. Counting on revenue increase, the government deficit is expected to be at 2.4% of GDP in 2022 and narrow further in 2023, at 1.6% (IMF). Meanwhile, the rise in global energy and food prices contributed to an increase in inflation, which stood at 2% in 2021 and should remain stable over the forecast period.

According to IMF estimates, unemployment stood to 8.4% in 2020, heavily influenced by the negative economic impact of the COVID-19 pandemic. The rate is expected to follow a downward trend in 2022 (8%) and 2023 (7.6%), driven by the overall expansion of economic activity. Though the average revenue of Croatians is still below the European average (with an estimated GDP per capita PPP of USD 29,777 in 2021 according to the IMF), Croatia remains the second most developed economy of the Balkan region, after Slovenia.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 60.7556.1763.4068.5373.98
GDP (Constant Prices, Annual % Change) 2.9-8.06.35.84.0
GDP per Capita (USD) 14,945e13,896e15,80817,22318,728
General Government Balance (in % of GDP) 0.4-5.7e-3.5-2.4-1.6
General Government Gross Debt (in % of GDP) 72.888.787.083.680.3
Inflation Rate (%) 0.80.12.65.92.7
Unemployment Rate (% of the Labour Force) 7.89.0e8.48.07.6
Current Account (billions USD) 1.85-0.20-0.06-0.55-0.75
Current Account (in % of GDP) 3.0-0.4-0.1-0.8-1.0

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

The agricultural sector represents only 3.3% of the country's GDP and employs 6.2% of the workforce (World Bank, latest data available). Croatia has 1.3 million hectares of agricultural land and almost 2.2 million hectares of forests. The country is self-sufficient in the production of wheat, corn, sugar beet, fruits, wine and olive oil; however, imports of agricultural products have been on the rise in recent years. The size of the farms is generally small (in most cases less than 3 hectares). According to data by the State Bureau of Statistics (DZS), the value of agricultural production in 2021 increased by 8.1% compared to one year earlier, and the value of real income in agriculture by 3.1%.

The secondary sector contributes 21.5% of GDP and employs 27.7% of the active population. Croatian industry is concentrated in competitive activities: textiles, wood, the steel industry, aluminium and the food industry. With more than one-third of the territory covered with forests, the wood industry is one of the fundamental sectors of the economy. The country has limited mineral resources. Figures from the State Bureau of Statistics (DZS) show that industrial output grew 6.7% year-on-year in 2021.

The service sector represents 58.9% of the country’s GDP, employing 66.1% of the workforce. The tourism sector, in particular, is among the key segments of the Croatian economy, accounting for almost a quarter of GDP, by far the largest share in the EU. However, the tertiary sector was hit hard by the economic crisis following the covid-19 pandemic. Tourism, in particular, saw the number of tourists decrease by 64.2% in 2020. Nevertheless, the sector partially recovered in 2021: according to data by the Ministry of Tourism and Sports, Croatia generated the best tourism results in the Mediterranean with 13.8 million arrivals and 84.1 million overnight stays in 2021 (+77% and 55%, respectively).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 6.2 27.7 66.1
Value Added (in % of GDP) 3.3 21.5 58.9
Value Added (Annual % Change) 3.7 -1.3 -8.6

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
63,6/100
World Rank:
79
Regional Rank:
38

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
5.69/10
World Rank:
59/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

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Sources of General Economic Information

Ministries
Ministry of Economy, Labour and Entrepreneurship
Ministry of Finance
Statistical Office
Croatian Bureau of Statistics
Central Bank
Croatian National Bank
Stock Exchange
Zagreb Stock Exchange
Economic Portals
Croatian Information Centre
 

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Latest Update: July 2022

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