Among the key priorities for the Croatian economy in 2014, the EBRD highlighted strengthening the business environment and boosting the economy's competitiveness. "Progress on these fronts has been limited in recent years, although some concrete measures have been implemented."
"The recent EU accession and the continued slump in economic activity have added urgency to further actions on these issues," the EBRD said.
"Labour market reforms are needed in order to reduce unemployment, especially among the youth. Unemployment rose sharply during the recession, and currently stands at close to 20 per cent of the labour force (and more than 40 per cent for those under 25). Measures to reduce hiring and firing costs are urgently needed."
Among the key priorities, the EBRD also highlighted enhancing private sector involvement in the infrastructure sector. "Efforts to reduce the role of the state and enhance commercialisation in key transport and energy companies should be stepped up."
The EBRD said the "prospects for recovery are gloomy. The economic outlook is very uncertain, given the protracted crisis in the eurozone, and downside risks are high."
It added that under current projections "the recession will continue this year, although the decline in GDP will be smaller than in 2012. Over the medium term, Croatia's economy could see a boost as a result of its EU accession, but prospects for growth will depend on the extent to which long-awaited reforms to public administration and the labour market are implemented."
Reforms have been stagnating throughout the transition region since the middle of the past decade, the EBRD said, highlighting a turnaround in public opinion on market reforms after the 2008-09 financial crisis, notably in countries with a higher level of democracy.
Long term predictions show that productivity growth will remain moderate in the next ten years, amounting to 2-4 per cent on average, provided countries maintain the current policies and institutions. The EBRD predicts that growth will further weaken in the next decade, which would slow down some countries in approaching the living standards of Western Europe.
In the next 20 years, only Central European and Baltic countries will reach or exceed 60 per cent of the per capita income in the 15 old EU member countries, the EBRD said.