In its spring forecast for 2013-2014 the European Commission assessed that Croatia's gross domestic product this year would fall by 1%, which is higher than its previous forecast of the 0.4% contraction.

Linic believes that the adjusted forecast was the result of the poor outlook for Europe and our neighbouring countries.

"The government's forecast relies on a significant impact of state investments into the electricity sector. We have to compel INA to finally start investing into the Rijeka and Sisak refineries and to drilling wells and we are preparing the first tender for concession over gas in the Adriatic", he told reporters in Rijeka on Friday.

He added that tourism had a high level of investment potential and that pre-bankruptcy settlements were starting to show results and illiquidity had been reduced from HRK 44 billion to HRK 37 billion and that debts were on the most part being repaid.

"The government firmly stands by its outlook of a growth of 0.7%. In Q1 we saw that banks offered a little more funds for commercial purposes and that confirms that our optimism is not mere wishful thinking but based on presumptions of changes occurring in 2013. We have our own means and there is still a great deal that needs to be implemented on the domestic market to buffer the impacts of the crisis in Europe as forecasted by the European Commission", said Linic.

The European Commission has forecasted that average unemployment could be as high as 19.1% and next year up to 20.1%.

"It is unrealistic to talk about higher unemployment", Linic added underscoring that Croatia had a low employment rate and that less than 1.4 million people were actively employed.

"It's the government's job to create jobs with investments and that is where we differ to the EC because our forecasts are based on investments and not on exports into Europe", concluded Croatia's finance minister.

Commenting on the EC's latest outlook for Croatia, Deputy Prime Minister and Minister of Regional Development and European Union Funds Branko Grcic told the press on Friday that the recession was continuing in Europe and Croatia couldn't be isolated from that as it was not an island.

Croatia is restructuring its economy and the government is intensively working in this regard particularly with more than 4,000 pre-bankruptcy settlements, he said.

Another positive aspect is Croatia's coming accession to the EU, Grcic pointed out as in that period the government plans a new cycle of large investments into the railway, waterworks, waste management and several smaller regional projects. Most of these investments will be funded with EU funds, he said. However, caution is required and there is still a great deal to be done to put us on the stable path of recovery, Grcic concluded.