In 2015, Croatia is expected to see an end of recession and post a 0.5% annual GDP growth, according to forecasts of the World Bank, the European Bank for Reconstruction and Development, and the International Monetary Fund. The growth will be underpinned by exports, fuelled by demand from the eurozone countries, reduced oil prices, and investments under EU programmes. Despite the growth forecast, Standard&Poor's Ratings Services has revised the outlook on Croatia to negative on lagging reforms.
Croatia saw no economic growth for a sixth consecutive year in 2014. The country's EU membership could not boost its economy with domestic demand remaining limited because of high unemployment and insignificant growth in wages. Croatia is highly dependent on the tourism industry, which accounted for more than 12% of the country's GDP in 2014, one of the highest levels among the countries in Southeast Europe.
Other macroeconomic indicators, which shaped the national economy in 2014, were the annual deflation caused by the weak domestic demand, the growing external debt, in particular the government external debt, and the shrinking current account surplus. Some positive developments included a rise in exports thanks to the country's EU membership, which helped reduce the external trade gap, the increase in new building permits, and an uptrend in industrial output.
Except tourism, Croatia's economy benefits from remittances of Croatian emigrants. In 2014, the remittances rose by 1.8% to more than 1.3 billion euro, according to data from the World Bank.
In the Doing Business 2015 report of the World Bank, Croatia ranked 65th, two places above its position in the 2014 report. According to the report, Croatia made easier: starting a business by reducing notary fees; dealing with construction permits by reducing the requirements and fees for building permits and carrying out the final building inspection more promptly; and trading across borders by implementing a new electronic customs system. The country made paying taxes more complicated for companies by raising the health insurance contribution rate, increasing the Croatian Chamber of Economy fees and introducing more detailed filing requirements for Value Added Tax.
The country also dropped by two places in the Global Competitiveness Report 20142015, published by the World Economic Forum. Croatia ranked 77th out of 144 countries thus being one of the worst performers among the countries in Southeast Europe. The key factors, which weakened the country's competitiveness, were bureaucracy, policy instability, and corruption. In the 2013-2014 report Croatia ranked 75th out of 148 countries.
The country's GDP decreased by a real 0.4% and totalled 328.9 billion kuna in 2014, ac-
cording to preliminary data of the Croatian Bureau of Statistics (DZS).
Final consumption, which contributed 80.0% to the GDP, fell by nominal 1.2%. Gross capital formation was down by 4.1%, contributing 18.6% to the GDP. Both imports and exports grew - by 2.3% and 6.1%, respectively.
The gross value added (GVA) generated by the national economy decreased by 0.5% in value in 2014 and totalled 278.3 billion kuna. The industrial sector fell by 0.7% and its share in the GVA structure inched down to 21.06% from 21.11% a year earlier. The construction sector was down by 6.1% y/y and had a share of 5.0% in the GVA against 5.3% in 2013. The services sector recorded a 0.2% annual increase, getting a 69.8% share in the GVA, up from 69.3% in the previous year. The agricultural sector registered an annual drop of 3.0%, thus narrowing its share in the GVA to 4.1%, from 4.3%.
Industrial output was up by 1.3% in 2014, according to DZS data. The manufacturing sector grew by 3.1%, while the mining sector went down by 6.4%, followed by electricity and gas supply with a 5.2% annual decline.
Manufacture of rubber and plastic products was the segment to report the highest annual production growth of 24.4% while manufacture of tobacco products dropped the most by 14.7%. Retail sales were down by 1.2% in 2014 after a 2.7% annual growth in 2013, according to DZS data. In 2012, retail sales inched down by 0.3% on the year.
The wholesale sector was down by 2.8% in 2014, after a 0.6% decline in 2013 and a 3.2% drop in 2012.
Consumer prices in Croatia turned to an annual average deflation of 0.2% in 2014 from a 2.2% annual average inflation in 2013. In 2014 the highest annual decrease in consumer prices was registered in oils and fats, vegetables, and liquid fuels of 12.1%, 6.4% and 5.6%, respectively. The consumer groups with highest inflation were postal services with 13.8%, holiday services with
10.6%, and hospital services with 8.7%.
Unemployment in Croatia narrowed to 19.6% of the total labour force at end-2014 from 21.6% a year earlier, according to data of DZS.
The employed population aged 15 years and older was 1.303 million in December 2014, down by 1.3% y/y.
Broad money (money aggregate M4) increased by 2.8% y/y and reached 287.6 billion kuna in December 2014, according to data provided by the Croatian National Bank (HNB).
The M1a money jumped by 9.4% to 65.8 billion kuna and money aggregate M1, or narrow money, also went up, by 9.2%, to 63.5 billion kuna.
The gross external debt totalled 46.7 billion euro at the end of December 2014. It widened by 1.6%, or 752 million euro compared to December 2013. In comparison to September 2014 the gross external debt grew by 198 million euro.
The current account surplus rose to 286.4 million euro in 2014 from 358.9 million euro in 2013, according to central bank statistics data.
FDI nearly tripled in 2014 to 2.88 billion euro, compared to 735 million euro in 2013, according to HNB data.
In 2014, the Netherlands was the biggest foreign investor in Croatia with FDI of 2.4 billion euro. Switzerland came second with 0.522 billion euro and Austria was third with 401 million euro.
Source: International Monetary Fund (IMF) World Economic Outlook Database – April 2015