Mesic said that an economic policy should include not only economic development, higher production and exports but also social sensitivity.
That policy must not be based on attempts to freeze salaries and accelerate the privatisation process in public services or "radically degrade health care and undermine the rights of the most vulnerable groups of citizens".
"I advocate the European model of social-market economy," Mesic added.
He said that in 2005 the government would face serious challenges, particularly with regard to the creation of conditions for economic growth and social development. The government is also responsible for cooperation with the Hague-based UN war crimes tribunal and for the continuation of cooperation with neighbouring countries with the aim of permanently stabilising the region, the head of state said.
Croatia has registered a rise in economic growth for four consecutive years, but the pace of progress is not satisfactory for everybody, which is why it is necessary to draw up a development strategy for the re-industrialisation of the country on the basis of new technologies, he said.
"The economic policy must help create new jobs, so as to increase the share of employed persons in the active population from the current 52 to 65 percent," he said.
2004 has seen a continuation in the development of democracy and democratic relations. Croatia has continued to strengthen its position and reputation on the foreign front and conduct an active foreign policy in cooperation with its neighbours.
In 2004 Croatia became a candidate for European Union membership and is continuing to make efforts necessary for its admission to NATO, the president said.
Croatia is expecting new challenges and important decisions in 2005. Membership talks with the EU should be opened in a responsible and resolute manner with the fulfilment of all conditions on that road, including the continuation of reforms in the judiciary and other state institutions.
"All of this will not be easy as the situation in international relations is not simple," he said, adding that Zagreb would adhere to its principled position on the military intervention in Iraq and follow the EU's policy in this matter.
At the same time, Croatia will promote relations with the United States, Mesic said, wishing a merry Christmas and a happy New Year to Croatian citizens.
Present at the reception were government officials, members of parliament, representatives of local authorities and political parties and religious dignitaries.