The lands that today comprise Croatia were part of the Austro-Hungarian Empire until the close of World War I. In 1918, the Croats, Serbs, and Slovenes formed a kingdom known after 1929 as Yugoslavia. Following World War II, Yugoslavia became a federal independent communist state under the strong hand of Marshal TITO. Although Croatia declared its independence from Yugoslavia in 1991, it took four years of sporadic, but often bitter, fighting before occupying Serb armies were mostly cleared from Croatian lands, along with a majority of Croatia's ethnic Serb population. Under UN supervision, the last Serb-held enclave in eastern Slavonia was returned to Croatia in 1998. The country joined NATO in April 2009 and the EU in July 2013.
Location
Southeastern Europe, bordering the Adriatic Sea, between Bosnia and Herzegovina and Slovenia
Natural Resources
oil, some coal, bauxite, low-grade iron ore, calcium, gypsum, natural asphalt, silica, mica, clays, salt, hydropower
Population - distribution
more of the population lives in the northern half of the country, with approximately a quarter of the populace residing in and around the capital of Zagreb; many of the islands are sparsely populated
Croatian (official) 95.6%, Serbian 1.2%, other 3% (including Hungarian, Czech, Slovak, and Albanian), unspecified 0.2% (2011 est.)
ZAGREB (capital) 687,000 (2015)
- Conventional long form
- Republic of Croatia
- Conventional short form
- Croatia
- Local long form
- Republika Hrvatska
- Local short form
- Hrvatska
- Name
- Zagreb
- Geographic coordinates
- 45 48 N, 16 00 E
- Time difference
- UTC+1 (6 hours ahead of Washington, DC, during Standard Time)
- Daylight saving time
- +1hr, begins last Sunday in March; ends last Sunday in October
has not submitted an ICJ jurisdiction declaration; accepts ICCt jurisdiction
Though still one of the wealthiest of the former Yugoslav republics, Croatia's economy suffered badly during the 1991-95 war. The country's output during that time collapsed, and Croatia missed the early waves of investment in Central and Eastern Europe that followed the fall of the Berlin Wall. Between 2000 and 2007, however, Croatia's economic fortunes began to improve with moderate but steady GDP growth between 4% and 6%, led by a rebound in tourism and credit-driven consumer spending. Inflation over the same period remained tame and the currency, the kuna, stable.
- Inflation
- -1.125%
- Total tax rate (% of commercial profits)
- 20.9%
- Real Interest Rate
- 6.933%
- Manufacturing, value added (% of GDP)
- 14.614%
- Current Account Balance
- US$ 2,491,562,517
- Labor Force, Total
- 1,855,492
- Employment in Agriculture
- 9.16%
- Employment in Industry
- 26.79%
- Employment in Services
- 63.88%
- Unemployment Rate
- 13.48%
- Imports of goods and services
- US$ 24,313,342,272
- Exports of goods and services
- US$ 25,919,846,929
- Total Merchandise Trade
- 70.25%
- FDI, net inflows
- US$ 158,968,738
- Commercial Service Exports
- US$ 12,480,697,792
arable crops (wheat, corn, barley, sugar beet, sunflower, rapeseed, alfalfa, clover); vegetables (potatoes, cabbage, onion, tomato, pepper); fruits (apples, plum, mandarins, olives), grapes for wine; livestock (cattle, cows, pigs); dairy products
chemicals and plastics, machine tools, fabricated metal, electronics, pig iron and rolled steel products, aluminum, paper, wood products, construction materials, textiles, shipbuilding, petroleum and petroleum refining, food and beverages, tourism
- Commodities
- transport equipment, machinery, textiles, chemicals, foodstuffs, fuels
- Partners
- Italy 13.4%, Slovenia 12.5%, Germany 11.4%, Bosnia and Herzegovina 9.9%, Austria 6.6%, Serbia 4.9% (2015)
- Commodities
- machinery, transport and electrical equipment; chemicals, fuels and lubricants; foodstuffs
- Partners
- Germany 15.5%, Italy 13.1%, Slovenia 10.7%, Austria 9.2%, Hungary 7.8% (2015)
- Country Risk Rating
- B
- Political and economic uncertainties and an occasionally difficult business environment can affect corporate payment behavior. Corporate default probability is appreciable.
- Business Climate Rating
- A3
- The business environment is relatively good. Although not always available, corporate financial information is usually reliable. Debt collection and the institutional framework may have some shortcomings. Intercompany transactions may run into occasional difficulties in the otherwise secure environments rated A3.
- Advanced social convergence: per capita GDP (as PPP) = 63% of European average
- Hydroelectricity covering 75% of electrical power needs
- Tourist attractiveness and long coastline
- Oil and gas potential
- Kuna pegged to euro
- High-quality infrastructures
- Weak industrial development/lack of competitiveness
- Low sophistication of exports which represent only 24% of GDP
- Mass tourism
- Large informal economy
- High external private debt
- Little leeway on fiscal and monetary policy (strong euroization)
- Poor absorption of European funds/poor local management
- High unemployment rate (15%, 44% among young people) and low activity rates (50%)
After six years of recession, Croatia enjoyed weak growth in 2015. This recovery was more robust in 2016 with a surge in tourism and a rebound in domestic demand. Growth in 2017 is likely to be similar to 2016: tourism (20% of GDP) will continue to benefit from the setbacks suffered by many Mediterranean countries. Against this, the contribution of trade in goods to growth could be negative, as sales momentum (wood, lingerie, shoes, electric transformers, turbines, car parts, medicines, electricity) linked to EU integration will wane, while imports will receive a boost from vigorous domestic demand. Public investment, especially in energy, will benefit from better absorption of European funds, while the growth of private investment will be slow because of corporate debt levels (80% of GDP), against a backdrop of resumption in borrowing, less political uncertainty, lower taxes on SMEs and greater tourist industry needs. The improved labor market orientation, tourist industry benefits and a likely income tax cut will continue to sustain household consumption, even if the (hesitant) return of inflation could temper the urge to buy.
The country is expected to exit the European excessive deficit procedure. The public accounts, which had deteriorated with the contraction in activity since the crisis, are slowly improving. Thanks to budget adjustments focused on spending, with the scope for any revenue increase being hampered by already high taxes (44% of GDP), the deficit dropped below 3% in 2016 resulting in a primary surplus (i.e. excluding debt interest). This surplus together with growth will generate a slow reduction in the heavy debt burden, three quarters of which is denominated in euro and held to a great extent by domestic institutional investors including banks, 90% of which are subsidiaries of Austrian and Italian groups. Progress is made difficult by the size of the informal economy (28%) and the large number of state-owned enterprises, some generating few or no profits, subsidized to the tune of 1.5% of GDP and which employ 13% of the economically active population.
The current account balance has run a surplus since 2013. The strong growth in 2015 is explained by the fall in dividend outflows linked to losses reported by the foreign bank subsidiaries following the conversion of household loans from Swiss francs to euro. The surplus covers a large deficit (15% of GDP in 2015) in the trade in goods, offset by the tourism surplus. However, it is expected to fall as the recovery in domestic demand is accompanied by a rebound in imports, while the local manufacturing industry struggles to meet this demand. Total remittances by foreign workers and European structural funds exceed outflows of dividend and interest payments. Modest foreign direct investments (FDIs), from the European Union, formerly concentrated in the banking sector, are flowing into construction, property, energy and chemicals in response to the development needs of tourism and energy resources. Thanks to the current account surplus, the gross external debt, which at the end of June 2016 represented 97% of GDP, has declined since 2015. Denominated primarily in euro, it exposes the public sector (which holds 42% of the outstanding debt), non-financial companies (35%) and the banks (15%) to foreign exchange risk. However, the risk is lessened by the fact that foreign exchange reserves broadly cover the debt due in the short term and by the pegging of the local currency, the kuna, to the euro, together with the strong "euroization" (70%) of credit.
Less than a year after the previous elections, the early elections held in September 2016 brought back to power the coalition formed by the center-right Democratic Union (HDZ) and the reformist party, MOST ("Bridge"). It holds 75 seats (of which 61 for the HDZ) out of 151 and has the support of the ethnic minority MPs (12 seats). The new prime minister and leader of the HDZ, Andrej Plenkovic, unlike his predecessor, intends to concentrate on economic and administrative reform, improving relations with Serbia and Bosnia Herzegovina, and to abandon the populist and nationalist discourse which contributed to the previous government's collapse after 5 months in office. The reform program remains focused on restructuring the administration and the state-owned enterprises (1/3 of employment), if necessary through privatization and job cuts, the changes to social benefits and the pension system and reform of the hospital system. Regional elections scheduled for May 2017 could delay implementation. While MOST sees itself as the guardian of orthodoxy, the HDZ MPs are sensitive to the social cost of the reforms.