In 2020, Croatia’s GDP contracted by 8.0% over 2019, mainly due to lower domestic and external demand and a sharp drop of 60.0% in tourism activities (year-on-year).
Between 2010 and 2020, the Croatian GDP experienced an increase of 3.1% amounting to HRK 353.7 billion (EUR 46.0 billion) in 2020.
The number of enterprises in the broad construction sector decreased by 11.6% over the 2010-2020 period, totalling 34,570. The decline was mainly due to the fall in the number of enterprises in the manufacturing sub‑sector (-26.6%), followed by the narrow construction (-16.4%) and the real estate activities (-4.9%) sub-sectors between 2010 and 2020.
The volume index of production in the broad construction sector exhibited an increase of 24.2% over the 2015-2020 period. The growth was mainly driven by 43.6% and 3.6% increases registered in the volume index of production in the construction of buildings and construction of civil engineering respectively, over the same reference period.
Correspondingly, the total turnover of the broad construction sector grew by 4.0% between 2010 and 2018, reaching EUR 10.9 billion. It further increased to EUR 11.5 billion in 2020, exhibiting an increase of 9.8% over the 2010 level of EUR 10.5 billion. This growth was mainly driven by the real estate activities, the manufacturing, and the narrow construction sub sectors, which grew by 72.9%, 25.7% and 5.7% respectively between 2010 and 2020.
Similarly, the gross operating rate of the broad construction sector, which is used to assess the profitability of the sector, stood at 14.6% in 2018. This is 0.4 pps above the 2010 level, reflecting low margins in the sector and indicating a sluggish profitability growth.
Demand in the housing market remained strong over the past few years. In fact, Croatia is facing a surge in real house prices in some areas, with rental prices rising steeply above inflation and GDP growth. These trends have made housing less affordable. To address this issue, the Croatian government adopted the Subsidised Loan Programme to provide affordable housing to its citizens. Over the 2017‑2021 period, 22,145 subsidised loans were approved.
Under its EUR 6.3 billion 2021-2026 Recovery and Resilience Plan (RRP), Croatia has allocated EUR 763.9 million for the renovation of buildings. EUR 591.4 million for the reconstruction of buildings damaged in earthquakes, including their energy renovation.
EUR 95.6 million have been allocated for residential buildings and EUR 479.8 million for public buildings and buildings with a status of cultural good. The government has launched a Renovation of Buildings initiative aimed at promoting the decarbonisation of the sector while supporting the post-earthquake buildings renovation. The initiative plans to support the renovation of at least 225,000 m2 of private building stock, 562,000 m2 of public buildings and 31,000 m2 of cultural buildings, while achieving at least a 30.0% increase in primary energy savings compared to the pre renovation state.
With regards to investment in civil engineering, the Croatian government allocated EUR 728.0 million of its RRP funding for investment in sustainable mobility. This includes upgrading railway lines, installing 1,300 electric charging stations as well as introducing zero emission vehicles and vessels. Croatia also plans to improve public transport in Zagreb by developing autonomous electric taxis under its new urban mobility ecosystem. Additionally, the government has allocated EUR 227.0 million for supporting employment and social inclusion including redesigning active labour market policies to boost employment, financing training and upskilling programme vouchers, as well as improving the adequacy and coverage of social benefits.
Support to upskilling / reskilling is important as the shortage of professional and skilled workforce in the construction sector continues to be a major concern. In response, the authorities are facilitating the access to the labour market for foreign workers by significantly increasing the number of work permits in several sectors including construction.
Overall, the Croatian construction sector has a positive outlook. Non-residential and civil engineering markets are expected to be the primary growth drivers. Additionally, investment in public sector infrastructure, reconstruction of buildings, digitalisation of economy and EU backed projects are expected to lead the future growth of the sector.