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Croatia’s Gross Domestic Product Trend Research Paper

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Micro Economic

Croatia has been improving in terms of its gross domestic product for the last 5 years at an increasing rate. This change has been caused by a contribution of various sectors of the economy. According to Croatia’s chamber of the economy, the economy has had a positive reaction over the last 10 months this year. It’s projected to rise to levels as high as 4.6 percent. Actually, if it was not for the foreign trade deficit which is affecting the balance of payment negatively, the economy would have performed even better. (Jasna Belosevic-matc, 2006).GDP was affected positively during the first 10 months while industrial production shot up by 4.3%. This increased the level of exports and realized a positive change in the income flow of the county.

In the tourism sector, the turnover set a history of 51,000,000 a record that has never been attained for the last 20 years. This was, however, unexpected by economists, considering the pace of growth since 2005, and the improvements made by the government on tourism; the pace was slow. They expected the tourism sector to grow by a larger figure. When valued in Euros the foreign revenue was expected to be around 6.2. Billion.

According to figures reporting foreign trade, Croatia exports had increased to 47.3% and imports to 14.7. Even though this rate slowed down, the rate at which the trade deficit was moving up did not stop from increasing by 12 percent from 19% the previous year to reach 9.4 billion dollars. This makes imports, to be higher than exports a situation that is making Croatia Government work twice harder. The rise of the balance of payment deficit has resulted in a rise in the gross foreign debt.

The country’s Gdp is, however, in a better position than the past 5 years, and with the continuing trend, the economy is expected to improve positively. (Redigeret 8th Dec 2006). Post-communist economies have had a Soviet environment, this does not exclude Croatia. This is affecting the countries’ allocation of resources to a very large extent. Statically, the output statistics of post-communism countries are overestimated in many cases. (Khanin 1991)

The fiscal deficit of 6.3% in 2003 has declined to 4.9%. In 2004 and 4.2% in 2005, in 2006 it went to rates as low as 3.3%. The government plans to cut the deficit to 2.8% and public debt to 48.7% by 2007

GDP trend in Croatia.
Graph showing GDP trend in Croatia.

Post-Communism and War

Among the countries facing the transition to post-communists is Croatia. The War itself caused massive immigration in the county. This time of shifting was marked by low labor productivity since labor as a factor of production was inactive. As a result, this caused low economic activity which in return caused a decrease in the country’s GDP following a rise in deficit financing as the country was forced to import a lot of commodities from outside including food.

Citizenship was another issue that came as a result of post-communism. The issues ranged from what kind of citizenship rights were to be given to different people in the Croatian government. As a result people who were not given rights as they had expected, resulted to either moving or hitting back on the government. This caused the government to spend more money forming commissions of inquiry which lowered the number of resources that would be allocated to improving the economy.

The social policies have been globalizing due to the improvement of international agencies. This has taken away the freedom of the inhabitants of the land since some of the policies don’t apply to the citizens of Croatia. One aspect of social globalization is the provision of ways of maintaining income. A transitional redistributive social policy is one that sought a lot of attention in Croatia since it’s considered to be from rich nations to poor nations. The global agencies are taking the responsibility of dictating social policy to Eastern Europe.

The intervention of the international community. This applies to Croatia like many communist countries. The conference for security and co-operation in Europe, The international monetary fund and World Bank are very active in the economic progress of the country. The intervention of these bodies has caused a lot of debate and tension in Croatian politics. These bodies have helped boost the GDP of Croatia to a small extent though.

The role of foreign NGOs. A large number of NGOs have failed the Croatian economy. Initially, they were doing so to educate the citizens especially on matters of health. However, now the Croatian economy is doing fine and be termed as stable. Thus, the impact of these NGOs on the Croatian economy is negative since the majority have realized there is minimal room for expansion and now are investing their profits outside causing a shift of resources, through weakening the country’s currency. This in return affects the GDP negatively.


In Croatia today, termination for employees, by employers is hard. This has encouraged joblessness to a large extent because more professionals are filling the market. Despite the hard termination policy, the number of long-term employment is rising; this makes those looking for jobs get a hard time finding one. On the other hand, the GDP is affected because the economy has very few people generating income while the jobless depend on them. When the job protection policy by a government is tightly observed, then the rate of jobs turnover is lowered, as employees seek to cut termination costs.

In Croatia, the rate of a firm’s growth is limited too. This makes opportunities for employment fewer, Due to few individuals willing to start up new ventures and cooperates. The expansion has thus been slow making the rate of growth decline, causing a negative reflection on the number of employments available.

From 1997, unemployment was high in Croatia due to the hyperinflation that had been reported then. However, the government tried improving the conditions and by 2001 the number of unemployment had decreased by a substantial percentage. It also encouraged agricultural products by buying them from farmers at a better price. This not only encouraged agricultural produce but lowered the balance of payment and encouraging the reduction of the balance of payment deficit. At the end of the day, the number of jobless people was reduced.

Globalization of its companies; the recognition of the companies from Croatia internationally lately is a good example. This has cut the unemployment rate. The companies include oil company INA, pharmaceutical company plus a textile company varteks, confectionary, Confectionary producer Kras, and manufacturer of electrical appliances Koncar. The Government of Croatia has also encouraged foreign companies to set up companies in Croatia to encourage employment too. For example, American companies have opened branches in Croatia; they include P&G, Mars, Philimonies, Ensearch, RJR, and Enron. This has been made possible by the Croatia government by giving incentives to attract foreign investments.

Normalization of political religion is another way that the government of Croatia is encouraging employment this is boosting the tourism industry. In return creating more jobs in the economy. The government of Croatia has also invested in educational facilities to educate its people. This is avoiding unemployment due to a lack of skill for many of its citizens. In return, these individuals are becoming more diversified because they are acquiring knowledge that can be enabling them to employ themselves or be employed. (Deacon B. 1992)

Inflation in Croatia

“Concerns that Croatian inflation would accelerate after the introduction of a flat-rate value-added tax (VAT) in January have proved unfounded” (Barry S. Marjanovish) According to a report realized on February 2, 1998, by the government of Croatia the 22% flat rate introduced for the value-added tax had brought a minor impact making speculated inflation be termed as unfound. The statistics bureau showed 2.4% on the month index price on a retail basis and reported a 2.8% increase in the living cost index.

By January of 1997, both Indices had risen to 1.0 % and 1.5 %. This meant that the introduction of Value Added Tax by the government of Croatia had not increased by more than 1.3% a figure that reflected a low level of inflation relative to previous years. In addition, the government has promised and fulfilled price-cutting programs in the economy to cut the inflation rate to lower levels. This is possible through the introduction of Value Added Tax and cancellation of turnover tax. (Antoria and gora 2007)

Inflation levels in Croatia.

Year Inflation rate (consumer prices) Rank Percent Change Date of Information
2003 2.20 % 151 2002 est.
2004 1.80 % 164 -18.18 % 2003 est.
2005 2.50 % 79 38.89 % 2004 est.
2006 3.30 % 99 32.00 % 2005 est.
2007 3.40 % 100 3.03 % 2006 est.

The government had improved the GDP of the economy of Croatia by trying to cut consumers exploitation by the cancellation of value-added tax on staple commodities like Mild, sugar, and cooking oil. This encourages consumption of locally produced goods and in return boosting the balance of payment deficit to lower figures.

Croatian Debts

The government of Croatian is reported to be owing to its pensioners over 10 billion German Marks. According to the financial institutions’ report, the government cannot afford to pay such money and if at all it does it might incur a big financial crisis in other impotent sections of the economy. Economists, however, figure out that the only way the government can be able to pay such money is through inflation, which is not a viable way for the government to pay debts.

As a result, the Croatian Bureau of retirement cannot be paid more than 30% of what legal people owe it. Considering that Croatia has international monetary funds organizations like World Bank assisting the country financially, the country is reported to have accrued interests that need to be sorted. However, currently, the Croatian economy is doing fairly well and it’s estimated that with its current trend, it can manage to repay all its debts with its current resources without necessary borrowing. (David m. 2007)

Forecast of Croatia’s economy

The President of Croatia on Jan 28, 2000, announced that the country had realized a significant economic change and issues like unemployment, inflation, and current account deficit would be dealt with and the economy’s GDP would continue to grow while the rate of inflation remains low.


Communist and post communist studies volume 32 issue 1999, Pages 263-279.

Pečnik N, Soroya B, and Stubbs P. (1994) Sunflowers of Hope: some issues in social Services for refugees and displaced persons in Croatia. In Practice (UK) forthcoming.

Deacon B. (1992) The Future of Social Policy in Eastern Europe in Deacon B. et al The New Eastern Europe.

Rutkowski, 2003. “Does strict employment creation discourage job creation? Evidence from Croatia,” policy research working paper series.

David m. (2007) economic growth in Croatia; potential and constraints. Kamco publishers.

Antoria and gora (2007) Economy of Croatia, business and economy, finance (39).

Pavlovic. (2006) P. In defense of Marxism. Croatia in the period of relative economic stability.

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