OECD Economic Surveys: Croatia 2023
Croatia has navigated well the COVID-19 crisis and the price shocks following Russia’s war of aggression on Ukraine. It has achieved robust output growth, rising employment and improving well-being, although inflation has surged. Integration into the euro- and Schengen areas at the start of 2023 are testament to progress, and are providing a further fillip to the economy. Ensuring that fiscal policy is counter-cyclical and that lending supports productive investments can help contain inflationary pressures and sustain growth. Croatia’s ongoing and ambitious reforms and investments must continue for incomes to converge with OECD levels while also preparing for climate change. Reducing regulatory burdens, more responsive judicial processes, addressing corruption risks and improving the performance of state-owned enterprises can foster a more dynamic business environment with stronger growth by higher productivity firms. A big push to strengthen adults’ skills would ensure that employers can fill high-skilled positions and support rising incomes. Better engaging younger adults in work, encouraging older adults to work until the full retirement age, and attracting needed skills through immigration would reduce poverty risks, raise productivity and help Croatia adapt to an ageing population.
SPECIAL FEATURES: IMPROVING THE BUSINESS ENVIRONMENT; A BETTER PERFORMING LABOUR MARKET
Also available in: French
Key policy insights
Croatia’s strong recovery from the COVID-19 crisis has been slowed by the surge in global energy and food prices following Russia’s war of aggression on Ukraine. Robust services exports led by tourism, a tightening labour market and rising investment, the latter fuelled by the implementation of the Recovery and Resilience Plan, are maintaining robust growth. Demand and access to finance are being bolstered by Croatia’s integration into the euro and Schengen areas. However, the surge in inflation is abating slowly, as capacity constraints and rising wages broaden cost pressures. Ensuring that fiscal policy does not add to demand pressures while inflation is high, and that new lending funds quality investments, can help maintain robust growth and moderate inflationary pressures. Reallocating public spending to areas that best support growth, raising more revenues from sources with lower burdens on activity, and encouraging greater formalisation of activity can help maintaining healthy and growth-supporting public finances. Implementing an ambitious programme to reduce greenhouse and other polluting emissions and to adapt to a changing climate would hasten the transition to a green economy and improve well-being.
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