The news that this year’s tourist season has started well has gone almost unnoticed. A growth of four percent has been recorded. The Minister of Tourism, Tonči Glavina, has estimated that the rest of the preseason and the post-season will also be ‘very good’. He is a bit more cautious regarding the main season, but so far, there are no signs of panic in the tourism sector. Regardless of a percentage point more or less, tourism remains the most important economic sector in Croatia.
There is no prospect that anything significant will change in the functioning model of the Croatian economy by 2025. No matter how much we cheer for industry growth and how many individual examples of investment in new production facilities we record, when everything is summed up, national accounts show that the growth paradigm does not change: tourism plus remittances from abroad plus EU funds – and that’s it. For a generally unambitious community, that is quite enough.
In the daily bombardment of contradictory data and assessments, it is easy to miss the forest for the trees. A chronicler is helped if he has preserved the presentation of economist Damir Odak from last year, which he delivered as part of the Lider financial conference. Unlike many publicly active economist analysts whose authorship of books on their commentary is uncertain, Odak made the effort to write a book ’40 Lost Years of the Croatian Economy’ (2022). Thus, he has a framework in which he places the latest economic events. This framework can help align this year’s news and data within it.
Lost Years
Overall, the data on a good tourist preseason and industrial stagnation fit perfectly into the mentioned framework. We are still in a ten-year period that began in 2015, when the recession finally ended in Croatia. And when tourism, directly and indirectly, became the main generator of growth. In that decade, the government did nothing to move Croatia away from monocultural dependence on tourism.
Odak’s main thesis is that stagnation relative to the world average began back in the 1980s, after dynamic growth within Yugoslavia during the rapid industrialization period (1950 – 1980). When he speaks about independent Croatia in the 21st century, he says it started well. But by the end of 2023, growth was only 63 percent compared to the world, which grew by 78 percent.
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Thus, the self-praise that we are currently growing the fastest within the slow-moving European Union should be taken with caution. In the 21st century, three periods can be identified. The first is from 2000 to 2008. Growth was based on the influx of capital and loans. This was a real influx that relatively quickly turned into purchasing power. Investors bought shares, land, paid for work, and domestic sellers and suppliers then spent and invested that money. More than half of foreign investments went into banking, telecommunications, and trade. The share of industry in gross added value decreased by 20 percent. At the same time, private debts of the economy and citizens grew. Even if the global crisis had not occurred, a break would have happened.
The recession from 2009 to 2015 was caused by the cessation of capital and loan inflows. In those difficult years, a new growth model based on tourism emerged. Inflows from tourism replaced financial ones. The foreign exchange inflow from tourism grew from 12 percent of GDP to 18 percent. Odak claims that the indirect impact of tourism on GDP – within the framework of investments and consumption of recipients – is even between 25 and 30 percent. It would be good if there were scientific work proving such high percentages, but there is logic in the multiplicative effect of tourism. Industry grows, but slower than GDP. The importance of commodity production decreases, while the importance of services continues to grow.
Recognizing Defeat
Odak’s conclusion is interesting and clear: ‘The imbalances that caused the long recession have been eliminated. The balance of payments and the fiscal balance are balanced. The model has been functioning for a decade. However, the growth of tourism does not accelerate the relative growth of the rest of the economy. It grows, but slower than tourism and GDP. Consequently, the longer the model functions, the greater the dependence on tourism becomes. This model could lead to periodic short recessions caused by a poor season, but not to a long resistant recession like the one from 2009 to 2015.’
The prerequisites for growth are the economic growth of emitting markets, cheap seasonal labor, the absence of serious CO₂ emission reduction policies, order and peace, favorable weather conditions, and competitive prices.
All in all, the chronicler, an advocate of a model based on industry and exports, must sportsmanlike recognize defeat. The development model based on tourism, instead of weakening, is strengthening.
