Personal Consumption, Tourism, and Investment Lead the Way for Growth in Croatia

May 11, 2017

Tbilisi, 11 May, 2017 – The economy in Croatia is expected to grow by 2.9 percent in 2017, and around 2.6 percent in 2018 and 2019. Growth will be led by strengthened personal consumption, tourism, and investment - benefitting from absorption of funds from European Union (EU), says the latest Economic Update for Europe and Central Asia (ECA) Trade in Transition, launched today in Tbilisi, Georgia.

According to the report, the growth trend is also expected in the ECA region as a whole, following the stabilization of oil prices, benefitting the eastern half of the region, and a continued recovery in the western half of the region. Growth is forecast at 1.9 percent for 2017, up 0.3 percentage points from an earlier forecast in October, and will remain a stable 1.8 percent in 2018.

The report also notes that policies focused on improving trade in the region are crucial for building on this modest growth. Trade has been vital in improving the lives of people in ECA. From the transition period in the 1990s to today, trade has promoted growth, created jobs, and granted access to various goods and services for millions of people.

“The sharp increase in international trade over the last three decades has dramatically transformed the region. It made the transition of Central and Eastern Europe into market economies possible, and it was linked to the creation of the common market in the European Union,” says Hans Timmer, World Bank Chief Economist for Europe and Central Asia.

“Trade has promoted innovation, and currently more people in the region participate in the labor market than ever before. However, international competition and new technologies have reduced job security. Countries must align their social protection systems with these new labor market realities, in order to help workers cope with the uncertainty.”

In Croatia, labor market performance improved, with a sharp decline in unemployment - 14 percent in 2016 - as job creation and net migration outflows intensified. A high level of emigration and continued outflows from inactivity into early retirement led to declines in labor force participation. Thus, the employment rate remained 44.5 percent, far below the EU average.

Overall, the region has been resilient to the ongoing global slowdown in trade, with trade volumes continuing to grow twice as fast as Gross Domestic Product (GDP). The current slowdown of China’s exports has been the main driver of the global trade slowdown, but the reduced competitiveness of China’s exports has actually opened up new opportunities for ECA. According to the report, countries can best take advantage of these opportunities by embracing a new growth strategy focusing on these new job opportunities in sectors that are internationally competitive.

Three transitions are necessary to build on this strategy:

  • a continued shift to producing goods that can sell in international markets to drive a sustained shift from imports to exports;
  • a reorientation towards Asia, moving away from the intraregional trade that has defined ECA in recent decades; and
  • a shift away from goods toward services, such as tourism and software, where most future growth opportunities are.
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