Economy of Croatia

The Economy of Croatia is a service-based economy, with the service sector accounting for 67% of the total GDP. The preliminary GDP data for 2008 put Croatian GDP at 370.5 billion Croatian Kuna, or just over USD 15,700 per capita^[7], putting Croatia ahead of the EU member states Bulgaria, Romania, Latvia, Lithuania, and Poland. The estimated Gross Domestic Product per capita in purchasing power parity in 2008 was around USD 18,740 or 63% of the EU average for the same year^[8].

Shipbuilding dominates the industrial sector; with exports of over €1 billion annually, shipbuilding accounts for over 10% of exported goods. Food processing and chemical industry take significant portions of industrial output and are responsible for significant portion of exported goods. Industrial Sector represents 27% of Croatia’s total economic output, and agriculture represents 6%.

Slavonia, breadbasket region of Croatia.

Croatian agricultural sector subsists from exports of blue water fish, which in recent years experienced a tremendous surge in demand, mainly from Japan and South Korea. Croatia is a notable producer of organic foods and much of it is exported to the EU. Croatian wines, olive oils and lavender are in particularly high demand.

Tourism is a notable source of income, particularly during the summer months but also more recently from winter months, due to an increase in popularity of snow sports such as skiing. With over 10 million foreign tourists annually, tourism generates revenue in excess of €7 billion. Croatia is ranked amongst the top 20 most popular tourist destinations in the world, and was voted the world's top tourism destination of 2005 by Lonely Planet.^[9]

Trade has finally begun to play major role in Croatian economic output. In 2007 Croatia exported goods in value of USD 12.84 billion (24.7 billion including service exports). Croatia has stable functioning market economy with the strong and stable currency, the Kuna.

Croatia and Slovenia, the two westernmost republics in what was formerly known as Yugoslavia, alone accounted for nearly half of the total Yugoslavian GDP, and this reflected in overall living standard which in Croatia's case was over 50% above the Yugoslav average, and close to 90% in Slovenia. Nevertheless, starting in the late 1980s, at the beginning of the process of economic transition, Croatian economy suffered as result of de-industrialization, war destruction as well as losing the markets of Yugoslavia and the SEV.

GDP per Country: (source IMF/World Bank - 1990)

Persistent economic problems still remain: a rather elevated unemployment of 9.6% in 2007^[10], as well as slow progress of economic reforms. Of particular concern is the heavily backlogged judiciary system, combined with inefficient public administration, especially regarding issues of land ownership and corruption in public sector and political sectors. Unemployment is regionally uneven: it is very high in eastern (Slavonia and parts of Dalmatia), nearing 20% in some areas, while relatively low in the northwest and larger cities, mainly Istria, Kvarner, and the Zagreb area, being between 3 and 7%. Unemployment has been constantly declining by 5% over the last 7 years.^[11]

The country has since experienced faster economic growth and has been preparing for membership in the European Union, its most important trading partner.

In February 2005, the Stabilization and Association Agreement with the EU officially came into force, and Croatia is advancing towards full EU membership. The country expects serious positive economic impulses and high growth rates in the coming years, as currently, Croatia is stagnated by an elevated export deficit and high but manageable debt. Croatia is expecting a major boom in investments, especially greenfield investments.

Gross Domestic Product

Fiscal year: calendar year

GDP per county: (source Croatian statistical institute for year 2005)

GDP per county: (source Croatian statistical institute for year 2006)

GDP per county: (GDP for year 2007 - source Croatian National Bank)

GDP per county: (Preliminary GDP Data for year 2008 - source Croatian National Bank, first time grey market included)

History

Pre-1990

In an economy traditionally based on agriculture and livestock, peasants comprised more than half of the Croatian population until after World War II. Pre-1945 industrialization was slow and centered on textile mills, sawmills, brick yards, and food-processing plants.

One of the fertile agricultural regions, near the Neretva river

Rapid industrialization and diversification occurred after World War II. Decentralization came in 1965, allowing growth of certain sectors, like the aforementioned prosperous tourist industry. Profits from Croatian industry were used to develop poorer regions in the former Yugoslavia, leading to Croatia contributing much more to the Yugoslavian economy than it ever got back. This, coupled with austerity programs and hyperinflation in the 1980s, led to discontent in both Croatia and Slovenia that fueled the independence movement. Foreign remittances contributed $2 billion annually to the economy by 1990.^[12]

Before the dissolution of Yugoslavia, the Republic of Croatia, after Slovenia, was the most prosperous and industrialized area, with a per capita output more than one-third above the Yugoslav average. Privatization under the new Croatian Government had barely begun when war broke out. As a result of the Croatian War of Independence, the economic infrastructure sustained massive damage during the period, particularly in 1991 and 1992.

The Tudman years

By the end of the 1990s, Croatia faced considerable economic problems stemming from:

• damage during the internecine fighting to bridges, factories, power lines, buildings, and houses;
• the large refugee and displaced population, both Croatian and Bosnian
• the disruption of economic ties; and
• mishandled privatization

The Republic of Croatia, along with the remainder of the former Yugoslavia, experienced a serious depression. President Franjo Tuđman initiated the process of privatization and de-nationalization in Croatia; however, this was far from transparent and fully legal. The fact that the new government's legal system was inefficient and slow, as well as the wider context of the Yugoslav wars, caused numerous incidents known collectively in Croatia as the "Privatization robbery" Croatian: "privatizacijska pljačka"). Nepotism was endemic and during this period many influential individuals with the backing of the authorities acquired state-owned property and companies at extremely low prices, afterwards selling them off piecemeal to the highest bidder for much larger sums. This proved very lucrative for the new owners, but in the vast majority of cases, this, along with the separation from the previously secured Yugoslav markets, also caused the bankruptcy of the (previously successful) firm, causing the unemployment of thousands of citizens, a problem Croatia still struggles with to this day.

This was all helped, not just by the [allegedly purposeful] inadequacy of legal restrictions, but also by the apparently active support of the new Croatia's authorities , ultimately controlled by Tuđman from his strong presidential position. In the end this shed an increasingly negative light, and cast a shadow on his notable successes as a strategist and wartime statesman. Excluding the mostly rural rebel-occupied areas (the so-called Republic of Serbian Krajina), in the last two years of Tuđman's first tenure the detrimental effects of "wild" and unrestricted capitalism had become strikingly visible, with more than 400,000 unemployed citizens, and a significant drop in the GDP per capita, problems Croatia struggles with to this day.

Inflation and unemployment rose and the kuna fell, prompting the national bank to tighten fiscal policy. A new banking law passed in December 1998 gave the central bank more control over Croatia's 53 remaining commercial banks. Croatia is dependent on international debt to finance the deficit. A recently issued euro-denominated bond was well received, selling $300 million, which helped offset economic losses from the Kosovo crisis.

Despite the successful value-added tax program, planned privatization of state controlled businesses, and a revised budget with a 7% across that board cut in spending, the government still projected a $200 million deficit for 1999.

Western aid and investment, especially in the tourist and oil industries, is doing its part to help further develop the economy. The government has been successful in some reform efforts — partially macroeconomic stabilization policies — and it has normalized relations with its creditors.

The recession that began at the end of 1998 continued through most of 1999, and GDP in 1999 was flat. Inflation remained in check and the kuna was stable. However, consumer demand was weak and industrial production decreased. Structural reform lagged and problems of payment arrears and a lack of banking supervision continued.

Due to the upcoming elections, the HDZ government promised two salary increases to public-sector employees before the end of the year which increased the fiscal deficit.

After Tudman

The death of President Tuđman in December 1999, and the defeat of his ruling Croatian Democratic Union or HDZ party in parliamentary and presidential elections in January 2000 ushered in a new government committed to economic reform and halting the economic decline.

The Račan government carried out a large number of structural reforms and with tourism as the main factor, the country emerged from recession in 2000. Due to overall increase in stability, the economic rating of the country improved and interest rates dropped. As a result of coalition politics and resistance from the unions and the public, many reforms are still overdue, especially in the legal system.

Unemployment reached a peak of around 22% in late 2002 due to many overdue bankruptcies. It has since been steadily considerably, powered by growing industrial production and rising GDP rather than only seasonal changes (tourism). The GDP rose to the level it had in 1990 only in 2003.

Most economic indicators remained positive in this period, except for the external debt. The Croatian National Bank had to take steps to curb further growth of indebtedness of local banks with foreign banks (commonly the same foreign banks that own the local ones). The dollar debt figure is quite adversely affected by the EUR/USD ratio — over a third of the increase in debt since 2002 is due to currency value changes.

Tourism is a notable source of income during the summer. With over 10 million foreign tourists a year (as of 2006), Croatia is ranked as the 18th major tourist destination in the world.^[13]

The Croatian economy is heavily interdependent on other principal economies of Europe, and any negative trends in these larger EU economies, for example those of Germany or Italy also have a negative impact on Croatia as they are its biggest trade partners. The country is a candidate for membership in the European Union. During the accession, it is expected that agricultural policy will be the biggest stumbling block, as with other recent applicant countries.

By early 2005, the foreign debt of the Government declined in growth, and was surpassed in size by the foreign debt of the banking sector, prompting further interventions by the national bank. As of late 2007, the unemployment rate is 9.6%.^[10]

Stock exchanges

• Zagreb Stock Exchange

Banking

Croatian National Bank Building in Zagreb

List of banks in Croatia

Central bank:

• Croatian National Bank

Major commercial banks:

• Zagrebačka banka (owned by UniCredito from Italy)
• Privredna banka Zagreb (owned by Intesa Sanpaolo from Italy)
• Hrvatska poštanska banka
• Hypo-Alpe-Adria Bank (owned by Hypo-Alpe-Adria Bank from Austria)
• Raiffeisen Bank Austria (owned by Raiffeisen from Austria)
• Erste & Steiermärkische Bank (former Riječka banka, owned by Erste Bank from Austria)

Central Budget

Overall Budget:^[14]
revenues:

• $21.75 billion (114.2 billion Kuna)2007 (official figure)
• projected for 2008 - 124.2 billion Kuna (24.85 billion USD)

expenditures:

• $22.8 billion, (119.2 billion Kuna) 2007(official figure)
• projected for 2008 - 128.7 billion Kuna (25.74 billion USD)

Expenditure for 2007:

• Education - 10.5 billion Kuna
• Health Care - 21.4 billion Kuna
• Welfare & labour - 38.4 billion Kuna
• Interior and Justice - 6.6 billion Kuna
• Defense - 4.7 billion Kuna
• Finance - 11.1 billion Kuna
• Agriculture - 3.3 billion Kuna
• Culture and Sport - 1.2 billion Kuna
• Other - 17.0 billion kuna

Expenditure for 2008 = projected:

• Education - 12.4 billion Kuna
• Health Care - 22.4 billion Kuna
• Welfare and labour - 41.3 billion Kuna
• Interior and Justice - 6.6 billion Kuna
• Defense - 5.45 billion Kuna
• Finance - 12.0 billion Kuna
• Agriculture - 3.6 billion Kuna
• Culture and Sport - 1.2 billion Kuna
• Other - 23.8 billion Kuna

Economic indicators

From the CIA World Factbook 2007.

GDP: purchasing power parity - $68.98 billion (2007 est.)

GDP - real growth rate: 5.8% (2007 est.)

GDP - per capita: purchasing power parity - $15,500 (2007 est.)

GDP - composition by sector: agriculture: 7.2% industry: 31.6% services: 61.2% (2007 est.)

Labor force: 1.749 million (2007 est.)

Labor force - by occupation: agriculture 2.7%, industry 32.8%, services 64.5% (2004)

Unemployment rate: 9.6% (2005 est.)^[10]

Population below poverty line:
national absolute: 11% (2003)
internationally comparable: 4.8% (2003 est.)

Household income or consumption by percentage share:
lowest 10%: 3.4%
highest 10%: 24.5% (2003 est.)

Distribution of family income - Gini index: 29 (2001)

Inflation rate (consumer prices): 2.9% (2007)

Investment (gross fixed): 30.9% of GDP (2007 est.)

Budget:
revenues: $19.2 billion (104.5 billion Kuna)2007 (official figure) projected for 2008 - 115.2 billion Kuna (21.95 billion USD)
expenditures: $19.75 billion, (108.6 billion Kuna) 2007(official figure) projected 3doe 2008 - 120.5 billion Kuna (22.9 billion USD)

Public debt: 47.3% of GDP (2007 est.)

Agriculture - products: wheat, corn, sugar beets, sunflower seed, barley, alfalfa, clover, olives, citrus, grapes, soybeans, potatoes; livestock, dairy products

Industries: chemicals and plastics, machine tools, fabricated metal, electronics, pig iron and rolled steel products, aluminium, paper, wood products, construction materials, textiles, shipbuilding, petroleum and petroleum refining, food and beverages; tourism

Industrial production growth rate: 5.2% (2007 est.)

Electricity - production: 11.99 billion kWh (2005)

Electricity - production by source:
fossil fuel: 33.6%
hydro: 66%
nuclear: 0%
other: 0.4% (2001)

Electricity - consumption: 14.97 billion kW·h (2005)

Electricity - exports: 3.634 billion kW·h (2005)

Electricity - imports: 8.746 billion kW·h (2005)

Oil - production: 27,190 barrels per day (4,323 m³/d) (2005 est.)

Oil - consumption: 99,000 barrels per day (15,700 m³/d) (2004 est.)

Oil - proved reserves: 69.14 million barrels (10.992×10^⁶ m³) (1 January 2006)

Natural gas - production: 1.477 billion cubic metres (2005 est.)

Natural gas - consumption: 2.58 billion cubic metres (2005 est.)

Natural gas - exports: 0 cubic metres (2005 est.)

Natural gas - imports: 1.103 billion cubic metres (2005 est.)

Natural gas - proved reserves: 27.16 billion cubic metres (1 January 2006)

Current account balance: −$4.385 billion (2007 est.)

Exports: $12.02 billion f.o.b. (2007 est.)

Exports - commodities: transport equipment, textiles, chemicals, foodstuffs, fuels

Exports - partners: Italy 23.1%, Bosnia and Herzegovina 12.7%, Germany 10.4%, Slovenia 8.3%, Austria 6.1%, (2006)

Imports: $26.54 billion f.o.b. (2007 est.)

Imports - commodities: machinery, transport and electrical equipment, chemicals, fuels and lubricants, foodstuffs

Imports - partners: Italy 16.7%, Germany 14.5%, Russia 9.7%, Slovenia 6.8%, Austria 5.4%, China 5.3%, (2006)

Reserves of foreign exchange and gold: $13.67 billion (31 December 2007 est.)

Debt - external: $45.29 billion (30 June 2007 est.)

Economic aid - recipient: ODA $125.4 million (2005)

Currency: kuna (HRK)

Exchange rates: kuna per US$1 – 5.3735 (2007), 5.8625 (2006), 5.9473 (2005), 6.0358 (2004), 6.7035 (2003), 7.8687 (2002), 8.34 (2001), 8.2766 (2000), 7.112 (1999), 6.362 (1998), 6.157 (1997), 5.434 (1996), 5.230 (1995)

See also

• Economy of Europe
• Croatia
• Croatian brands

References

External links

• Croatian National Bank
• Croatia Business Report
• Croatian Chamber of Economy
• Product-Of-Croatia
• GDP per inhabitant varied by one to six across the EU27 Member States

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