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 slowly 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 and has yet to recover. Difficult problems still remain, including a stubbornly high unemployment rate, uneven regional development, and a challenging investment climate.
The new government has announced a more flexible approach to privatization, including the sale in the coming years of state-owned businesses that are not of strategic importance.
While macroeconomic stabilization has largely been achieved, structural reforms lag. Croatia will face significant pressure as a result of the global financial crisis, due to reduced exports and capital inflows.
Croatia reentered a recession in 2012, and Zagreb cut spending. The government also raised additional revenues through more stringent tax collection and by raising the Value Added Tax in February 2012.
On 1 July 2013 Croatia joined the EU, following a decade long application process. Croatia will be a member of the European Exchange Rate Mechanism until it meets the criteria for joining the Economic and Monetary Union and adopts the euro as its currency.
Croatia's high foreign debt, strained state budget, and over-reliance on tourism revenue could hinder economic progress over the medium-term.