Following World War II, rapid industrialization and diversification occurred within Croatia. Decentralization came in 1965, allowing growth of certain sectors, like the tourist industry. Profits from Croatian industry were used to develop  poorer regions in the former Yugoslavia. This, coupled with austerity programs and hyperinflation in the 1980s, contributed to discontent in Croatia.

Privatization and the drive toward a market economy had barely begun under the  new Croatian Government when war broke out in 1991. As a result of the war, the economic infrastructure sustained massive damage, particularly the revenue-rich tourism industry. From 1989 to 1993, GDP fell 40.5%. Following the close of the war  in 1995, tourism rebounded, and the economy briefly recovered.

The solid growth that began in the mid-1990s halted in 1999. A recession, caused primarily by weak consumer demand and decrease in industrial production, led to a 0.9% contraction of GDP that year. Furthermore, inflation and unemployment rose, and Croatia’s currency–the kuna–fell, inciting fears of devaluation.

Fueled in great part by increases in tourism, the Croatian economy began to turn around in 2000, growing 2.9%. This was followed by a 3.8% increase in 2001. The trend continued in 2002, when the economy expanded by 5.2%, stimulated by a credit boom led by newly privatized and foreign-capitalized banks, some capital investment (most importantly road construction), increases in tourism, and gains by small and medium-sized private enterprises. The increase of unemployment has halted and is slowly reversing, although state-financed enterprises, particularly in agriculture
and shipbuilding, continue to rely on subsidies and rack up arrears. Weak investor interest due to the poor financial condition of many firms, unresolved property right issues, unrealistic Croatian expectations of market value, and political
infighting led to a slowdown of privatization in 2002. However, this trend reversed  slightly in 2004 when 14 majority government-owned small and medium sized firms were privatized. The process of privatization has once again stalled, with the privatizations of several steel companies and shipyards, among other industries,  left pending.

Before the dissolution of Yugoslavia, the Republic of Croatia, after Slovenia, was the most  prosperous and industrialized area with a per capita output perhaps one-third above the Yugoslav average. The economy emerged from a mild
recession in 2000 with tourism, banking, and public investments leading the  way. Unemployment remains high, at about 17%, with structural factors slowing its decline. While macroeconomic stabilization has largely been achieved, structural reforms lag because of deep resistance on the part of the public and lack of strong support from politicians. Growth, while
impressive at about 3% to 4% for the last several years, has been stimulated, in part, through high fiscal deficits and rapid credit growth. The EU accession process should accelerate fiscal and structural reform.