ECONOMY
Following World War II, rapid industrialization and diversification occurred within Croatia. 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, contributed to discontent in Croatia.
Privatization and the drive toward a market economy had barely begun under the
new Croatian Government when war broke out in 1991. As a result of the war, the
economic infrastructure sustained massive damage, particularly the revenue-rich
tourism industry. From 1989 to 1993, GDP fell 40.5%. With the end of the war in
1995, tourism and Croatia's economy recovered moderately. However, corruption,
cronyism, and a general lack of transparency stymied meaningful economic reform,
as well as much-needed foreign investment.
Croatia's economy turned the corner in 2000 as tourism rebounded. The economy expanded by 5.6% in 2002, stimulated by a credit boom led by newly privatized and foreign-capitalized banks, some capital investment (most importantly road construction), further growth in tourism, and gains by small and medium-sized private enterprises. These trends have continued, with credit growth fueling strong demand in construction and services, resulting in 4.8% GDP growth in 2006. Unemployment, although still high, began a steady decline over this period that has continued to the present day. Croatia has also benefited from macroeconomic stability over the past several years with a stable exchange rate, low inflation, and shrinking government deficits. The start of European Union accession talks in 2005 and the prospect of NATO membership have also helped to attract higher levels of foreign investment.
Despite these gains, however, substantial challenges remain, particularly in
reforming the judicial system and reducing corruption. The privatization
process, begun in the 1990s, has been unsteady, largely as a result of public
mistrust engendered when many state-owned companies were sold to the politically
well-connected at below-market prices. The government sold three large metals
plants in early 2007, but the Croatian state still controls a significant part
of the economy, with government spending accounting for as much as 40% of GDP.
Some large, state-owned industries, such as the country's shipyards, continue to
rely on government subsidies, crowding out investment in education and
technology needed to ensure the economy's long-term competitiveness.
Economy
Real GDP growth (2006): 4.8%.
Inflation rate (2007): 2.9%.
Unemployment rate (International Labor Organization method, 2006): 11.8%.
Natural resources: Oil, bauxite, low-grade iron ore, calcium, natural asphalt, mica, clays, salt, and hydropower.
