Croatia overview

Seascape

In Croatia we focus on:

Mitigating the impact of the crisis and restoring sustainable growth. Croatia was one of the region's countries worst hit by the global crisis of 2008-09 and has struggled towards recovery ever since. In the context of the new joint IFI action plan for growth in central and south-eastern Europe, the EBRD is tailoring its financing to meet potential demand for long-term investment as well as working capital financing, operational and financial restructuring. Support to the corporate sector is aimed at foreign investors and local companies. Our investments will be strengthened by policy dialogue to promote economic restructuring, diversification and improved business climate conditions and corporate governance.

Leveraging the benefits of EU accession to advance transition. As a EU member, Croatia has access to substantial amounts of structural funds, but experience shows that new members often have difficulty absorbing these funds effectively. In addition, private sector companies may find it difficult to meet the challenge of enhanced competition. We are working closely with the authorities and the EU in selected areas where structural funds can be blended with those of the EBRD to accelerate transition, including in the municipal sector. The EBRD is also providing financing, mainly though financial intermediaries, to facilitate investments by corporates to enhance their competitiveness.

Restructuring and commercialising public sector enterprises. One of the reasons for Croatia’s continued stagnation is the delay in restructuring large infrastructure utilities. The government has started addressing this problem and EU accession makes reforming public sector entities an even more urgent task, as the country’s absorption capacity is conditioned on capacity enhancement, financial and operational improvement at public utilities. The EBRD is working with the authorities to accelerate the reform of publicly-owned companies in the infrastructure sector.

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

EBRD forecast for Croatia’s real GDP growth in 2019 2.5%

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

Economic expansion moderated from the post-recession high of 3.5 per cent in 2016 to 2.6 per cent in 2018, following a 2.9 per cent growth rate in 2017. Private consumption remained the main driver of growth, fuelled by increased earnings, a higher employment rate and increasing pace of household lending. The unemployment rate in December 2018 was 8.6 per cent, down from 18.3 per cent in December 2014 (the last year of recession). However, higher private consumption led to increased imports, and as exports did not increase by as much, the negative contribution from net exports was higher in 2018 compared to the years before.
 
Fiscal adjustment continued in 2018 albeit at a slower pace. The 2018 budget surplus is estimated at 0.4 per cent of GDP, following a budget surplus of 0.9 per cent in 2017 (the first surplus since the country’s independence). The strong fiscal performance and continued economic expansion led to a decreasing public debt ratio, from a peak of 86 per cent of GDP in 2014 to an estimated 74 per cent in 2018. Investment continued along its recovery path from 2015, rising about 4-5 per cent per year on average ever since, and thus contributing almost 1 percentage point to growth per year, as economic sentiment kept on rising (and is now at its post-crisis maximum). In addition, Croatia is back to investment grade, thanks to S&P’s upgrade to BBB- in March 2019.
 
We expect growth of 2.5 per cent in 2019 and 2020. Risks to the projection are relatively balanced. On the upside there is a chance of another improvement of the tourism revenues and faster utilisation of the EU funds, while the downside relates to the negative spillovers from the country’s ailing food and retail giant, Agrokor, although risks related to the latter have decreased following the debt settlement reached in 2018.