Economy of Croatia

Economy of Croatia is a service-based economy with the tertiary sector accounting for 70% of total gross domestic product (GDP). Croatian GDP in 2010 was 335.5 billion Croatian Kuna and contracted by 1.4% year-on-year. Although Croatian economy had showed signs of recovery in the last quarter of 2010 and officially exited recession in the first quarter of 2011, economic indicators suggest that the recovery may be sluggish with the economy expected to grow by 1.5-1.8% in 2011.

In spite of the rather slow post-recession recovery, in terms of income per capita Croatia is still ahead of some European Union member states such as Bulgaria, Romania and Latvia. Estimated GDP per capita in purchasing power parity (PPP) in 2010 was around USD 19,754 or 63.3% of the EU average for the same year.

The industrial sector with exports of over €1 billion annually is dominated by shipbuilding which accounts for over 10% of exported goods. Food processing and chemical industry also account for significant portions of industrial output and exports. Industrial sector represents 27% of Croatia’s total economic output while agriculture represents 6%. Industrial sector is responsible for 25% of Croatia's GDP, with agriculture, forestry and fishing accounting for the remaining 5% of Croatian GDP.

Croatian agricultural sector subsists from exports of blue water fish, which in recent years experienced a tremendous surge in demand, mainly from Japan and South Korea. Croatia is a notable producer of organic foods and much of it is exported to the European Union. Croatian wines, olive oil and lavender are particularly sought after.

Tourism is traditionally a notable source of income, particularly during the summer months, but also more recently during the winter months as well, due to an increase in popularity of snow sports such as skiing. With over 10 million foreign tourists annually, tourism generates revenue in excess of €7 billion. Croatia is ranked among the top 20 most popular tourist destinations in the world, and was voted world's top tourism destination in 2005 by Lonely Planet.

Trade plays a major role in Croatian economic output. In 2007 Croatia's exports were valued at USD 12.84 billion (24.7 billion including service exports). Croatia has a stable market economy accompanied by a strong and stable currency, the Kuna.

Croatia and Slovenia, the two westernmost republics in what was formerly SFR Yugoslavia, accounted for nearly half of the total Yugoslav GDP, and this was reflected in the overall standard of living which in Croatia's case was more than 50% above Yugoslav average, and close to 90% in Slovenia. Nevertheless, since the late 1980s and the beginning of economic transition, Croatian economy experienced difficulties due to deindustrialization, war destruction and the loss of Yugoslav and Comecon markets.

Persistent economic problems still remain and include a rather high unemployment rate (9.6% in 2007), and the slow progress of necessary economic reforms. Of particular concern is the heavily backlogged judiciary system, combined with inefficient public administration, especially regarding the issues of land ownership and corruption in the public sector. Unemployment is regionally uneven: it is very high in eastern and southern parts of the country, nearing 20% in some areas, while relatively low in the north-west and in larger cities, where it is between 3 and 7%. Unemployment has been constantly declining by 5% over the last 7 years.

The country has since experienced faster economic growth and has been preparing for membership in the European Union, its most important trading partner.

In February 2005, the Stabilization and Association Agreement with the European Union officially came into force, and Croatia is advancing towards full EU membership. The country expects serious positive economic impulses and high growth rates in the coming years, as currently its economic development is marred by a high export deficit and a high but manageable debt. Croatia is expecting a major boom in investments, especially greenfield investments.