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Photograph: Hina/ Tomislav Pavlek/tp

President Kolinda Grabar-Kitarovic on Tuesday welcomed the positive economic indicators in Croatia, but warned that this trend could not be sustained in the long run without genuine structural reforms.

Grabar-Kitarovic addressed over 230 American and Croatian business people and diplomats at a brunch organised by the American Chamber of Commerce in Zagreb. Among those attending were Croatian Parliament Speaker Zeljko Reiner and US Ambassador Julieta Valls Noyes and several foreign ambassadors.

Increased personal consumption, increased exports, lower oil prices and increased industrial production have boosted Croatia's GDP over the last three quarters to higher than expected levels, the president said, adding that the European Commission has projected Croatia's GDP growth rate at 2.1 percent in 2016 and 1.8 percent in 2015.

Grabar-Kitarovic, however, warned that this nevertheless would be the lowest growth rate among all new EU member states and that Croatia was lagging behind its peers.

With public debt continuing to grow, without changing the business environment the projected growth will not be enough to pay interest on such a high debt. There is not enough job creation and unemployment is statistically on the decline because people, especially young ones, are emigrating, she said.

Grabar-Kitarovic noted that the current positive indicators had been achieved by intertia rather than by structural and strategic economic moves, adding that refusal to face the truth and reality was irresponsible and ultimately dangerous.

"Cyclical economic trends which seem to be bringing us a period of growth must not be characterised by the absence of structural reforms," the president said, warning that retaining the present economic structure and growth model could lead to a new, painful downturn.

"The final objective of all the reforms must be a market economy and a private sector as a generator, driver and safeguard of sustainable and stable economic growth and development. Special emphasis should be placed on the export-oriented private sector that will serve as a basis for the development of all other economic activities in the country," she said.

Among the main priorities, Grabar-Kitarovic stressed the need to adjust fiscal and monetary policy, reduce the administrative burden, and reduce and restructure tax and non-tax encumbrances adversely affecting competitiveness.

As for the reform of public administration, the president said that it should focus on improving the efficiency and transparency of the public administration system rather than on merely reducing the number of municipalities and staff.

She mentioned economic diplomacy as a strong tool for economic development and spoke about her own active role in that regard, notably in promoting cooperation between the north and south of the EU through the Adriatic-Baltic-Black Sea initiative, which she said was well accepted because it opened up great potential for cooperation in infrastructure and energy development and in the private sector.

Grabar-Kitarovic also stressed the importance of new global trade agreements, saying that Croatia should find its place and interest in them. She said that the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US had huge potential if approached "seriously, responsibly and pragmatically", and that Croatia should become more actively involved in negotiations on it and not be just an observer.

In conclusion, Grabar-Kitarovic called for the comparable and coordinated implementation of all the reforms so that Croatia could catch up with its peers and develop a robust, crisis-resilient economy.

Berislav Horvat, the president of the American Chamber of Commerce in Croatia, said that the Croatian authorities should not be deluded by the current growth and should continue the reforms.

"The long-term priority of the Croatian state leadership should be to attract direct investment and continue work on improving the conditions for doing business," he said, urging the authorities to reform the public administration service for the benefit of the citizens and the economy.

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