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- GDP (PPP):
- $91.1 billion
- 1.6% growth
- -0.4% 5-year compound annual growth
- $21,581 per capita
- Inflation (CPI):
- FDI Inflow:
Croatia lags behind many of its neighbors in structural economic reform, and institutional shortcomings continue to hold back entrepreneurial growth. Recent fiscal reforms have been limited in scope and depth. Political volatility and pervasive corruption undermine the rule of law, and protection of property rights remains weak.
The state’s presence in private-sector activity remains intrusive, and the level of government spending is high. Few meaningful efforts have been made to reduce or control government spending, and the bloated public sector severely constrains private-sector dynamism, prolonging the economic downturn. Government ownership in such key sectors as transport, natural resources, and banking remains considerable.
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. In October 2016, after months of political instability, President Kolinda Grabar-Kitarovic appointed Andrej Plenkovic, leader of the center-right HDZ party, as prime minister after his party and a small populist group agreed to form a coalition government. Political uncertainty continues to endanger much-needed economic reform. Tourism and shipbuilding are major industries. While domestic demand has picked up in recent years, high indebtedness, a weak export base, and the slow pace of privatization continue to limit growth.
Private property rights are well established, but there can be ambiguous and conflicting claims in some title cases. Judicial independence is generally respected. A new appointments system has increased judicial professionalism, although the case backlog exceeds the EU average. Croatia received low scores in the Economist Intelligence Unit’s 2015 Democracy Index in categories indicating popular dissatisfaction with failure to tackle corruption.
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 36.4 percent of total domestic income. Government spending has amounted to 47.9 percent of total output (GDP) over the past three years, and budget deficits have averaged 5.0 percent of GDP. Public debt is equivalent to 87.7 percent of GDP.
Despite reforms to streamline the procedures for establishing a business, the overall regulatory environment remains burdensome and inefficient. A new labor law passed in 2014 was an attempt to make the labor market flexible and dynamic. Political instability in 2016 further delayed progress on reforms to reduce spending and subsidies as required by the European Commission’s Excessive Deficit Procedure.
Trade is important to Croatia’s economy; the value of exports and imports taken together equals 96 percent of GDP. The average applied tariff rate is 1.3 percent. In general, the government does not screen or discriminate against foreign investment. State-owned enterprises distort the economy. The banking sector has remained stable and relatively well capitalized, but nonperforming loans remain a problem.