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Economy of Croatia


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, brickyards, and food-processing plants. Rapid industrialization and diversification occurred after World War II. Decentralization came in 1965, allowing growth of certain sectors, like the tourist industry. Profits from Croatian industry were used to develop poorer regions in the former Yugoslavia. This, coupled with austerity programs and hyperinflation in the 1980s, led to discontent in both Croatia and Slovenia that fueled the independence movement.

Before the dissolution of Yugoslavia, the Republic of Croatia, after Slovenia, was the most prosperous and industrialized area, with a per capita output perhaps 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 in the period 1991-92.

Croatia faced considerable economic problems stemming from:

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 projects a $200 million deficit for 1999.

Western aid and investment, especially in the tourist and oil industries, is helping restore 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 growth for 1999 was flat. Inflation remained in check and the kuna was stable. However, consumer demand was weak and a 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.

The death of President Tuđman in December 1999, and the defeat of his ruling Coatian 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, esp. in the legal system.

Unemployment reached a peak of circa 22% in late 2002 due to many overdue bankruptcies. It has since been steadily decreasing, powered by growing industrial production and rising GDP rather than only seasonal changes (tourism).

Most economic indicators are currently positive (2003), except for the external debt. The national bank is taking 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.

Any negative trends in the large EU economies such as Germany or Italy also have a negative impact on Croatia as they are its biggest trade partners.

The country has applied 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.

Economic indicators

From the CIA World Factbook 2003.

GDP: purchasing power parity - $38.9 billion (2002 est.)

GDP - real growth rate: 5.2% (2002 est.)

GDP - per capita: purchasing power parity - $8,800 (2002 est.)

GDP - composition by sector:
agriculture: 9%
industry: 33%
services: 58% (2002 est.)

Population below poverty line:
national absolute: 10%
internationally comparable: 4.8% (2003 est.)

Household income or consumption by percentage share:
lowest 10%: 3.7%
highest 10%: 23.3% (1998)

Distribution of family income - Gini index: 29 (1998)

Inflation rate (consumer prices): 2.2% (2002)

Labor force: 1,748,756 (2002)

Labor force - by occupation: agriculture 7.8%, industry 30.7%, services 61.3% (2002)

Unemployment rate: 21.7% (2002 est.)

revenues: $8.6 billion
expenditures: $9 billion, including capital expenditures of $NA (2001 est.)

Industries: chemicalss 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: 2.8% (2002 est.)

Electricity - production: 12.12 billion kWh (2001)

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

Electricity - consumption: 14.27 billion kWh (1998)

Electricity - exports: 386 million kWh (1998)

Electricity - imports: 3.386 billion kWh (1998)

Oil - production: 29,000 bbl/day (2001 est.)

Oil - consumption: 89,000 bbl/day (2001 est.)

Oil - proved reserves: 93.6 million bbl (January 2002 est.)

Natural gas - proved reserves: 34.36 billion cu m (January 2002 est.)

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

Exports: $4.9 billion (f.o.b., 2002)

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

Exports - partners: Italy 19.6%, Germany 14.7%, Bosnia and Herzegovina 13%, Slovenia 8.8%, Austria 11.5%, France 3.7% (2001 est.)

Imports: $10.7 billion (c.i.f., 2002)

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

Imports - partners: Germany 16.1%, Italy 14.5%, Slovenia 6.9%, Austria 6.3%, France 5.6%, Russia 3.3% (2001 est.)

Debt - external: $16.5 billion (2001)

Economic aid - recipient: ODA $66 million (2000)

Currency: kuna (HRK)

Exchange rates: kuna per US$1 - 7.8687 (2002), 8.34 (2001), 8.2766 (2000), 7.112 (1999), 6.362 (1998), 6.157 (1997), 5.434 (1996), 5.230 (1995)

Fiscal year: calendar year

See also : Croatia