Croatia overview

Seascape

In Croatia we focus on:

  • Supporting efforts to accelerate the reform process: The Bank’s engagement in Croatia in the new strategy period which started in 2017-stands to gain significantly from acceleration in the pace of the reform process. Accordingly, the EBRD will aim to enhance the impact of its investments as well as leveraging available EU funds for Croatia. The Bank will also closely co-ordinate with other IFIs, including the EIB and World Bank Group.
     
  • Support private sector competitiveness through fostering innovation, operational and resource efficiency, as well as improvement of the business climate and economic inclusion. After a prolonged recession Croatia has now returned to growth. The next challenge is to tackle structural vulnerabilities and institutional deficiencies hampering competitiveness of the corporate sector, in particular micro, small and medium enterprises (MSMEs). The Bank continues to support larger domestic corporates and small and medium enterprises seeking to adopt modern operational and management practices, and foreign direct investments (FDIs) that produce technology transfers and serve to integrate local economy into global value chains.
     
  • Deepening financial markets to broaden access to finance with focus on capital markets developments. As small businesses’ access to finance remains constrained, the EBRD continues to provide long term funding directly to local companies and through partner financial institutions and, whenever possible, blend the financing with capacity building. The Bank will continue providing SME advisory through the Advice for Small Businesses programme. In line with the objectives of the European Commission's Capital Markets Union initiative, the Bank will put emphasis on the development of local capital markets.
     
  • Promote commercialisation of public companies, including the improvement of corporate governance, and support the privatisation of some state-owned companies. The Bank is working with the state and local authorities to accelerate the reform of public companies through promotion of commercialisation and increased private sector participation.
     
  • Croatia corporate productivity
  • Croatia SOE performance

The EBRD’s latest strategy for Croatia was adopted on 7 June 2017

EBRD forecast for Croatia’s real GDP growth in 2019 3.0%

EBRD forecast for Croatia's real GDP growth in 2020 2.5%

The economic recovery has continued in 2019, following four consecutive years of solid growth averaging 3.1 per cent, after a six-year recession from 2009-14. The economy expanded by 3.1 per cent year on year in the first half of 2019, on the back of broad-based domestic demand. Growth was equally supported by private consumption and investments. Private consumption was fuelled by increased earnings and higher employment, with the unemployment rate as of June 2019 at just 7 per cent (compared with 18 per cent in 2014), and an increased pace of household lending (which grew by 6 per cent in the first half of 2019).
 
Investment continued along its recovery path from 2015, helped by the growing disbursement of funds from the EU, rising economic sentiment and low interest rates. In line with previous years, net exports contributed negatively to growth, although to a somewhat larger extent in the first half of 2019. Fiscal adjustment has continued, although at a slower pace, as government spending contributed positively to growth. A balanced budget is expected in 2019, following a small budget surplus of 0.3 per cent of GDP in 2018.
 
The government’s commitment to joining the European Exchange Rate Mechanism II, as part of the euro adoption strategy, should serve as an anchor for prudent fiscal policy in the coming years. Standard & Poor’s and Fitch raised Croatia’s credit rating to investment grade (BBB-) in March and June 2019 respectively.
 
GDP growth of 3.0 per cent is expected in 2019, followed by a light moderation to 2.5 per cent in 2020, broadly in line with the country’s current growth potential, as supply-side constraints for the tourism sector become more apparent. Growth is likely to be mainly driven by private consumption, which is supported by positive labour market developments and low inflation. Risks to the projection come from possibly weaker demand from Croatia’s main economic partners, such as the eurozone.