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- GDP (PPP):
- $88.5 billion
- -0.4% growth
- -1.1% 5-year compound annual growth
- $20,889 per capita
- Inflation (CPI):
- FDI Inflow:
Mired in recession, Croatia’s economy continues to face waning competitiveness and bureaucratic difficulties in the investment environment. Few meaningful steps have been taken to reduce or control government spending, and the bloated public sector severely undermines private-sector dynamism, prolonging the economic downturn in the absence of needed reforms.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 59.1 (down 2.4 points)
- Economic Freedom Status: Mostly Unfree
- Global Ranking: 103rd
- Regional Ranking: 38th in Europe
- Notable Successes: Trade Freedom and Monetary Freedom
- Concerns: Rule of Law and Management of Public Finance
- Overall Score Change Since 2012: –1.8
Pervasive corruption still erodes public trust in government. State ownership in such key sectors as transport, natural resources, and banking remains considerable. A new labor law was passed in July 2014 to make the labor market flexible and dynamic, but given the lack of progress in other critical areas, its impact is doubtful.
Croatia declared its independence in 1991, contributing to the breakup of Yugoslavia along ethnic and religious lines. Years of Croat/Serb conflict ended formally in 1995 with the Dayton Peace Accords. Croatia joined NATO in 2009 and the European Union in 2013. No party won a majority of seats in the November 2014 elections. The conservative Croatian Democratic Union won three more seats than the incumbent center-left Social Democrats, and the centrist Bridge of Independent Lists was third. Coalition talks are ongoing. The global financial crisis and overreliance on tourism have hurt growth. Domestic demand is weak. The economy contracted for the sixth consecutive year in 2014, and the slow pace of privatization, high indebtedness, and a weak export base have exacerbated this weakness.
The 2013 criminal code enforces stiffer penalties for corruption, although more effort is needed to clean up public procurement. Judicial independence is generally respected, and a new judicial appointments system has increased professionalism, but the case backlog in courts remains above the EU average. Private property rights are well established, but there can be ambiguous and conflicting claims in some title cases.
The top personal income tax rate is 40 percent, and the top corporate tax rate is 20 percent. Other taxes include a value-added tax and excise taxes. The overall tax burden equals 30.4 percent of GDP. Government spending amounts to 47 percent of total domestic output. Management of public finance has deteriorated significantly, with the deficit averaging around 5 percent during the past three years. Public debt equals over 80 percent of GDP.
Reform measures have streamlined the procedures for establishing a business, but the overall regulatory environment remains burdensome and inefficient. Labor regulations remain rigid. The government made little progress in 2015 on structural reforms to reduce expenditures and subsidies as required by the European Commission’s Excessive Deficit Procedure before Croatia can enter the eurozone.
EU members have a 1 percent average tariff rate. Trade agreements are currently being negotiated with countries that include the United States and Japan. State-owned enterprises operate in several sectors of the economy. The consolidated banking sector is relatively sound and efficient, but the number of non-performing loans has risen significantly. Securities markets are open to foreign investors.