Romania vs. Croatia

Romania, which joined the EU on 1 January 2007, began the transition from communism in 1989 with a largely obsolete industrial base and a pattern of output unsuited to the country's needs. Romania's macroeconomic gains have only recently started to spur creation of a middle class and to address Romania's widespread poverty. Corruption and red tape continue to permeate the business environment.

In the aftermath of the global financial crisis, Romania signed a $26 billion emergency assistance package from the IMF, the EU, and other international lenders, but GDP contracted until 2011. In March 2011, Romania and the IMF/EU/World Bank signed a 24-month precautionary standby agreement, worth $6.6 billion, to promote fiscal discipline, encourage progress on structural reforms, and strengthen financial sector stability; no funds were drawn. In September 2013, Romanian authorities and the IMF/EU agreed to a follow-on standby agreement, worth $5.4 billion, to continue with reforms. This agreement expired in September 2015, and no funds were drawn. Progress on structural reforms has been uneven, and the economy still is vulnerable to external shocks.

Economic growth rebounded in the 2013-17 period, driven by strong industrial exports, excellent agricultural harvests, and, more recently, expansionary fiscal policies in 2016-2017 that nearly quadrupled Bucharest's annual fiscal deficit, from +0.8% of GDP in 2015 to -3% of GDP in 2016 and an estimated -3.4% in 2017. Industry outperformed other sectors of the economy in 2017. Exports remained an engine of economic growth, led by trade with the EU, which accounts for roughly 70% of Romania trade. Domestic demand was the major driver, due to tax cuts and large wage increases that began last year and are set to continue in 2018.

An aging population, emigration of skilled labor, significant tax evasion, insufficient health care, and an aggressive loosening of the fiscal package compromise Romania's long-term growth and economic stability and are the economy's top vulnerabilities.

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.