The European Semester was introduced as a tool to coordinate economic policies so as to fend off future crises.
In 2014, the EC established that Croatia was in the category of countries in excessive deficit procedure, and Zagreb managed to leave that procedure in 2017.
The latest report underscores that Croatia is found to be experiencing imbalances.
"Economic developments have been contributing to a gradual correction of existing imbalances, notably those related to high stocks of public, private and external debt, and in that way leading to a reduction of risks," the report says.
"Policy action and commitments that would help a sustainable correction of imbalances have been stepped up recently, and their full, swift and effective implementation will be crucial," reads the Croatia section.
The EC warns that remaining vulnerabilities are linked to high levels of public, private and external debt in a context of low potential growth. However, they have been narrowing over the past years, which is was supported by robust nominal growth, above estimated potential.
"The negative net external position remains large, but has been improving due to continued current account surpluses," the Commission says.
Deleveraging continues
"Private sector deleveraging is ongoing, though its pace is set to abate as credit growth and investment recover. The budget balance has been in surplus since 2017 and public debt has declined notably since its 2014 peak," the Commission says, praising "a prudent fiscal policy."
"The financial sector is well-capitalised and profitable while non-performing loans, although declining, remain elevated.
"The foreign currency exposure of corporations and households has reduced, but remains a vulnerability. Policy action has been stepped up with the adoption of a pension reform and new legislation to improve the fiscal framework. Other relevant policy measures are in the pipeline and their thorough implementation remains crucial for strengthening the resilience of the economy," the Commission says.
In its latest document, the EC says that apart from Croatia, another nine member-states are experiences imbalances: Bulgaria, France, Germany, Ireland, Romania, the Netherlands, Portugal, Spain and Sweden.
Three countries -- Cyprus, Greece and Italy -- are found to have excessive imbalances.
Text: Hina