Croatia vs. Serbia

Though still one of the wealthiest of the former Yugoslav republics, Croatia's economy suffered badly during the 1991-95 war. The country's output during that time collapsed, and Croatia missed the early waves of investment in Central and Eastern Europe that followed the fall of the Berlin Wall. Between 2000 and 2007, however, Croatia's economic fortunes began to improve with moderate but steady GDP growth between 4% and 6%, led by a rebound in tourism and credit-driven consumer spending. Inflation over the same period remained tame and the currency, the kuna, stable.

Croatia experienced an abrupt slowdown in the economy in 2008; economic growth was stagnant or negative in each year between 2009 and 2014, but has picked up since the third quarter of 2014, ending 2017 with an average of 2.8% growth. Challenges remain including uneven regional development, a difficult investment climate, an inefficient judiciary, and loss of educated young professionals seeking higher salaries elsewhere in the EU. In 2016, Croatia revised its tax code to stimulate growth from domestic consumption and foreign investment. Income tax reduction began in 2017, and in 2018 various business costs were removed from income tax calculations. At the start of 2018, the government announced its economic reform plan, slated for implementation in 2019.

Tourism is one of the main pillars of the Croatian economy, comprising 19.6% of Croatia's GDP. Croatia is working to become a regional energy hub, and is undertaking plans to open a floating liquefied natural gas (LNG) regasification terminal by the end of 2019 or early in 2020 to import LNG for re-distribution in southeast Europe.

Croatia joined the EU on July 1, 2013, following a decade-long accession process. Croatia has developed a plan for Eurozone accession, and the government projects Croatia will adopt the Euro by 2024. In 2017, the Croatian government decreased public debt to 78% of GDP, from an all-time high of 84% in 2014, and realized a 0.8% budget surplus - the first surplus since independence in 1991. The government has also sought to accelerate privatization of non-strategic assets with mixed success. Croatia's economic recovery is still somewhat fragile; Croatia's largest private company narrowly avoided collapse in 2017, thanks to a capital infusion from an American investor. Restructuring is ongoing, and projected to finish by mid-July 2018.

Serbia has a transitional economy largely dominated by market forces, but the state sector remains significant in certain areas. The economy relies on manufacturing and exports, driven largely by foreign investment. MILOSEVIC-era mismanagement of the economy, an extended period of international economic sanctions, civil war, and the damage to Yugoslavia's infrastructure and industry during the NATO airstrikes in 1999 left the economy worse off than it was in 1990. In 2015, Serbia's GDP was 27.5% below where it was in 1989.

After former Federal Yugoslav President MILOSEVIC was ousted in September 2000, the Democratic Opposition of Serbia (DOS) coalition government implemented stabilization measures and embarked on a market reform program. Serbia renewed its membership in the IMF in December 2000 and rejoined the World Bank and the European Bank for Reconstruction and Development. Serbia has made progress in trade liberalization and enterprise restructuring and privatization, but many large enterprises - including the power utilities, telecommunications company, natural gas company, and others - remain state-owned. Serbia has made some progress towards EU membership, gaining candidate status in March 2012. In January 2014, Serbia's EU accession talks officially opened and, as of December 2017, Serbia had opened 12 negotiating chapters including one on foreign trade. Serbia's negotiations with the WTO are advanced, with the country's complete ban on the trade and cultivation of agricultural biotechnology products representing the primary remaining obstacle to accession. Serbia maintains a three-year Stand-by Arrangement with the IMF worth approximately $1.3 billion that is scheduled to end in February 2018. The government has shown progress implementing economic reforms, such as fiscal consolidation, privatization, and reducing public spending.

Unemployment in Serbia, while relatively low (16% in 2017) compared with its Balkan neighbors, remains significantly above the European average. Serbia is slowly implementing structural economic reforms needed to ensure the country's long-term prosperity. Serbia reduced its budget deficit to 1.7% of GDP and its public debt to 71% of GDP in 2017. Public debt had more than doubled between 2008 and 2015. Serbia's concerns about inflation and exchange-rate stability preclude the use of expansionary monetary policy.

Major economic challenges ahead include: stagnant household incomes; the need for private sector job creation; structural reforms of state-owned companies; strategic public sector reforms; and the need for new foreign direct investment. Other serious longer-term challenges include an inefficient judicial system, high levels of corruption, and an aging population. Factors favorable to Serbia's economic growth include the economic reforms it is undergoing as part of its EU accession process and IMF agreement, its strategic location, a relatively inexpensive and skilled labor force, and free trade agreements with the EU, Russia, Turkey, and countries that are members of the Central European Free Trade Agreement.