The EBRD said its forecast for Croatia's 2013 economic growth has worsened and it now expects a 0.3% contraction instead of the earlier projected 0.8% expansion. The latest forecast is part of the Bank's Regional Economic Prospects report published on May 10. It compares with the previous estimate made in January.

In 2014, however, the EBRD sees the economy recovering to a growth of 1.9% from a five-year recession.

The GDP contracted about 2% in 2012, the report stressed. The main problem of the Croatian economy is that it continues to fail addressing its challenges with uncompetitive industries, labour market inflexibility and a large and inefficient public sector.

The EBRD stressed that the country will be able to benefit from the EU accession once it joins the bloc in July 2013. However, the government has to accelerate reforms in order to obtain full positive effects from the EU membership.

In the EBRD’s Central Europe and the Baltic States region, part of which is Croatia, the average GDP growth forecast is 0.8% for 2013, down from the January projection for a 1.2% expansion. The region also includes the three Baltic states, Hungary, Poland, Slovakia and Slovenia.

Croatia's average annual inflation is expected to decelerate to 3.1% in 2013 from 3.4% in 2012. The general government deficit is seen at 4.1% of GDP in 2012. The current account surplus last year is projected at 0.1% of GDP, while the net FDI at 2.4% of GDP.