Croatia: Economic and Political Overview

Economic Indicators

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). In recent years, the country managed to recover and return to its pre-crisis level already in 2021. After growing 6.2% in 2022, Croatia's GDP growth is estimated to have remained robust at 2.7% last year. Economic activity was buoyed by domestic demand, with private consumption benefiting from favorable wage trends and positive consumer sentiment. Strong investment growth was bolstered by EU funds. In 2024, real GDP is expected to grow by 2.6%, primarily driven by robust domestic demand and reflecting substantial carry-over effects from previous periods (IMF). Investment and public consumption growth are projected to slow down but maintain strength, given the ongoing execution of the Recovery and Resilience Plan and anticipated improvements in financing conditions.

Croatia's public debt stood at 63.8% of GDP in 2023, down from 68.8% one year earlier, with the ratio expected to decrease further this year (61.8%) and in 2025 (60.3%). In 1H23, budget performance demonstrated strength due to the surge in indirect tax revenues driven by elevated inflation. However, expenses escalated in the latter part of the year due to the costs associated with pension indexation, the recent support package, and the increments in public sector wages. The overall budget deficit was estimated at 1.3% of GDP by the IMF. Lower nominal growth and adjustments to personal income taxation and social contribution rates should lead to diminished budget revenues in 2024, resulting in a projected deficit of 2.1% of GDP (IMF). In 2023, HICP inflation dropped to 8.6%, down from 10.7% in 2022, with inflation excluding energy and food reaching 8.8%. Both surpassed the respective euro area rates of 5.4% and 5%. The slowdown in HICP inflation throughout 2023 was primarily influenced by declines in energy and processed food prices. Meanwhile, services inflation demonstrated greater persistence. Inflation is anticipated to reach 4.2% and 2.5% in 2024 and 2025, respectively, with the prices of energy and unprocessed food forecasted to be the main drivers of the downward trend. Meanwhile, services inflation is expected to remain relatively stable.

According to IMF estimates, unemployment decreased to 6.3% in 2023, from 6.8% one year earlier, and is expected to follow a downward trend in 2024 (5.9%) and 2025 (5.6%). The government sector is anticipated to provide substantial support to wage growth, particularly with significant (one-off) increases expected as part of the public sector wage-setting reform. Though the average revenue of Croatians is still below the European one (with an estimated GDP per capita PPP of USD 40,380 in 2022 according to the World Bank), Croatia remains the second most developed economy of the Balkan region, after Slovenia.

Main Sectors of Industry

The agricultural sector represents only 3.1% of the country's GDP and employs 6% of the workforce (World Bank, latest data available). Croatia has 1.5 million hectares of agricultural land and more than 1.9 million hectares of forests (FAO). 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 preliminary figures from the State Bureau of Statistics (DZS), the net added value of the agricultural sector for 2023 was projected at EUR 1.8 billion, marking a decrease of 2.3% in relation to the previous year. Concerning the value of agricultural production, the latest projection pointed to an increase of 0.8%, to EUR 3.2 billion.

The secondary sector contributes 19.9% of GDP and employs 28% of the active population. Croatian industry is concentrated in competitive activities: textiles, wood, 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. The manufacturing sector is estimated to contribute 12% of the national value added. Figures from the State Bureau of Statistics (DZS) show Croatia's industrial output dipped 0.1% on the year in 2023, after growing 1.6% one year earlier.

The service sector represents 60.9% of the country’s GDP, employing 66% 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. After being hit hard by the economic crisis following the COVID-19 pandemic, the tourism sector recovered in 2023, welcoming 20.6 million travelers who made 108 million overnight stays, which was 9% and 3% higher compared to 2022, equaling the 2019 record year (DZS). Five foreign-owned banks control over 80% of total assets and net profit in the country's banking system (S&P).

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	4.7	27.5	67.9
Value Added (in % of GDP)	3.4	21.0	59.1
Value Added (Annual % Change)	2.0	0.6	4.5

Source: World Bank - Latest available data.

 

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Monetary Indicators	2016	2017	2018	2019	2020
Croatian Kuna (HRK) - Average Annual Exchange Rate For 1 MUR	0.19	0.19	0.19	0.19	0.17

Source: World Bank - Latest available data.

 

 

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Indicator of Economic Freedom

Definition

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

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

 

Foreign Trade in Figures

Croatia joined the WTO in 2000 and depends heavily on foreign trade, which amounts to 125% of the GDP (World Bank, latest data available). The country mainly exports petroleum oils (6.3%), electrical energy (5.8%), petroleum gas and other gaseous hydrocarbons (5.6%), medicaments (2.7%), wood sawn or chipped lengthwise (2.3%); while imports are driven by petroleum gas and other gaseous hydrocarbons (9.4%), petroleum oils (non-crude) (6.9%), electrical energy (5.1%), motor cars and other motor vehicles (3.4%), petroleum oils and oils (crude) (2.9% - data Comtrade 2022).

In 2022, the main export partners were Italy (12.2%), Slovenia (11.6%), Germany (11.4%), Hungary (11.2%), and Bosnia and Herzegovina (10.4%). In the same period, the leading import origins were Italy (13.8%), Germany (12.5%), Slovenia (10.8%), the United States (7.6%), and Hungary (7.3% - Comtrade). Overall, the EU accounted for 68.7% of total exports and 70.4% for imports (DZS).

In terms of merchandise, Croatia has a structural trade deficit: according to figures by the WTO, in 2022 exports of goods totaled USD 25.3 billion (+15.6% y-o-y) while imports increased by 28.3%, to USD 44.3 billion. However, the country is a net exporter of services, with exports – at USD 20.9 billion – far above imports (USD 6 billion). According to figures by the World Bank, the overall trade deficit stood at an estimated 6.2% of GDP in 2022, much higher than the level of 2.7% recorded one year earlier. Preliminary figures from the Croatian Bureau of Statistics show that in 2023 exports declined by 5.3% year-on-year to EUR 22.834 billion, while imports saw a 6% decrease to EUR 39.373 billion.

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

Search Engines

Pogodak
Croatian Web directory

Economic Portals

Croatian Information Centre

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