In its spring forecast, Brussels predicts that the Croatian economy will grow 1.1 per cent this year. In last autumn's forecast for this year, it predicted a growth of 1.5 per cent. In 2012, Croatia's GDP is expected to grow two per cent instead of the 2.1 per cent predicted earlier.

"Although economic activity seems to have bottomed out, it is unlikely that the economy will return to pre-recession growth rates, at least in the short term," said the Commission.

"As a result of the recession, the high external deficits underwent severe adjustments," Brussels said, reducing the current-account deficit forecast for 2011 from the 3.7% predicted in the autumn to 2.2% of GDP and from 4.7% to 2.5% in 2012.

Due to last year's tax changes and the resulting lower revenues, the budget deficit will rise to 6% of GDP this year, but is expected to fall to 5% in 2012 thanks to a moderate revenue recovery. Last autumn, the European Commission forecast a 6.1% deficit for 2011 and 5.6% for 2012.

The Commission also reduced the forecast for the general government debt in 2011 from 45.9% to 45.2% of GDP, while in 2012 it could rise to 48.4% of GDP instead of to the 49.9% predicted last autumn.

Inflation pressures are expected to remain relatively mild, although the Commission now expects somewhat higher inflation rates than last autumn - 2.8% in 2011 and 2.5% in 2012 instead of the previously forecast 1.8% and 2% respectively.

The labour force is projected to decline faster than employment and the unemployment rate will show a small decrease to 11.3% in 2011, as against the 12.3% predicted last autumn. In 2012, the unemployment rate should fall more significantly, to 9.8%, instead of the previously forecast 11.2%.