As other emerging economies reliant on tourism (about 25 percent total contribution of tourism-related industries in GDP and employment), Croatia has been hit hard by the pandemic and two devastating earthquakes, leading the economy to contract by 8.0 percent in 2020. Vaccinations have been rolled out to about 38 percent of the population (end-June 2021). Staff projects growth to bounce back to 5.4 percent in 2021, driven by a rebound in the services sector and investment, aided by fiscal and monetary policies, and bolstered by large EU grants over the medium-term.
, of 5.4 and 5.8 percent growth respectively driven by a rebound in the services sector (assuming % and nearly full recovery of tourist arrivals in 2021, and 2022 respectively), and investment which will be bolstered by large EUinvestmentgrants over the medium-term. Over the medium term, growth is projected to ease closer to 3 percent. Inflation is projected to pick up and stay at 2 percent through 2023, in line with the ECB inflation target. There are large risks on both sides, including from virus mutations in the near-term which could result in significant