Croatia entered the European Union (EU) on July 1, 2013 as the 28th member state. The government has been striving to raise Croatia’s competitiveness to compete in the large EU market and maximize the opportunities that membership brings, especially the absorption of a large amount of EU Structural Funds.
Before the global financial crisis of 2008-09, the Croatian economy grew at a healthy 4-5% annually, incomes doubled, and economic and social opportunities dramatically improved. The prolonged crisis is testing this progress, as well as Croatia’s aspirations, as the country is now entering its sixth year of recession, having lost over 12 % of its output.
Gross Domestic Product (GDP) is estimated to fall by 0.5% in 2014. There is more optimism about the prospect for growth in 2015, with exports projected to pick up in the Eurozone and private investments expected to increase. The privatization of large state-owned enterprises (SOEs) and the availability of EU funds (in net terms about 2% of GDP per year) should also help growth prospects in the medium term. The structural reforms that the Government has launched for labor, pension, and social benefits - as well as areas in the investment climate -could help stimulate job creation, productivity, and social cohesion. However, the outlook for the short term in Croatia remains difficult.
Unemployment rose to 17% at the end of 2013 and youth unemployment, at over 40%, remains one of the highest in Europe. The private sector has been bearing the brunt of the crisis with most jobs lost in manufacturing, construction, and trade. Public debt is estimated to have risen above 64% of GDP in 2013 and external debt will likely be close to 103% of GDP.
Before the recession, poverty was below 10% and mainly affected those without a job for more than three years and low-skilled workers but the protracted recession has led to an increase, and the poverty rate now stands at 18%. Today, due to the prolonged recession, the profile of the poor is changing, with normally economically active, better educated and younger people living in urban areas falling into poverty.
The Croatian economy is less competitive than its peers. From 2007 to 2013, Croatia’s private sector share of GDP remained at 70% - lower than its EU peers. To achieve private sector-led growth and faster EU convergence, actions are needed to liberalize the labor market, jump-start enterprise restructuring and the kind of new business creation and old firm exits required for the economy to reorient itself toward one reliant on knowledge, innovation, and transit-related services to maximize its geo-economic advantage as Europe’s transport hub.
Croatia spends 7.8% of it GDP on health, among the highest for new EU members. Like most other European countries, Croatia is expecting profound changes in its population structure over the next 50 years, as the elderly population grows and the need for health services and long-term care services rise. A challenge is to provide better health services and improve efficiency while reducing public spending on health.
Substantial reforms and improvements have been made in the Croatian education sector, but advances have been slow in improving the efficiency and the quality of higher education to better respond to the needs of the labor market. While more children and youth are enrolling in school programs (60% at the pre-school level, near universal enrollment at the primary level, and 88% at the secondary level), Croatia’s enrollment levels remain below the EU and the Organization of European Cooperation and Development (OECD).
Croatia has the geopolitical advantage of being situated along three pan-European transport corridors linking the EU and South East Europe and the Croatian authorities have invested heavily in developing this transport network. Prior to its accession to the EU, Croatia launched major reforms for the railway sector, in compliance with EU directives. However, the sector stil, faces numerous institutional and organizational issues and challenges. Croatia’s accession to the EU provides unique opportunities for the country to modernize its key international corridors through the use of EU Structural Funds, and to open up the railway sector to increased investment, market competitiveness, and efficiency.
Croatia remains an ecological treasure in Europe, with 47% of its land and 39% of its sea designated as specially protected areas and areas of conservation. Croatia boasts 19 National and Nature Parks, with some- such as the Plitvice Lakes National Park - designated as United Nations Educational, Scientific and Cultural Organization (UNESCO) World Heritage sites. Croatia’s natural beauty draws in millions of tourists each year, with tourism revenues representing around 15% of the country’s GDP. Preservation of the environment is high on the development agenda and has been a requirement for European Union membership.
With EU membership, Croatia became party to the 2020 Climate and Energy Package, a set of binding legislation that aims to ensure that the EU meets its ambitious climate and energy targets for 2020 Croatia is doing well on greenhouse gas emissions (GHG). Today these emissions are smaller compared to the baseline of 1990 - amounting to less than 0.1 percent of global emissions. On the other hand, Croatia needs to put more effort into scaling-up renewable energy resource (RER) and energy-efficiency (EE) programs to alleviate energy security concerns and improve access to reliable and affordable energy imports