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, tourists reemerged, and the economy briefly recovered.

The solid growth that began in the mid-1990s halted in 1999. A recession, which was 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 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 the 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 over the last several years appears to have 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 poor financial condition of many firms and unresolved property right issues, unrealistic Croatian expectations of market value, and political infighting led to a slow-down of privatization in 2002. However, the expected 2003 sale of 25% (plus one share) of the national petroleum company, and privatization of segments of the national electricity company starting in 2004 should stimulate further foreign investment and increase competitiveness.