The Standard & Poor's building is seen in New York. Picture: Jessica Rinaldi

Paris - Rating agency Standard and Poor's downgraded the long-term debt of new EU member Croatia by one notch on Friday, saying reforms fell short of what was needed to boost growth.

The agency said that obstruction to reforms from vested and entrenched interests was one of the main problems faced by the country.

The agency lowered the rating to “BB” from “BB+”, but said that the outlook was stable for the country which joined the European Union on July 1, 2013.

Explaining the decision, the agency said “that the economic and budgetary policy measures that the Croatian government has introduced so far have been insufficient to foster economic growth and place public finances on a more sustainable path.”

Standard and Poor's said in a statement: “In our view, Croatia's recession is likely to continue for a sixth consecutive year.

“The short-term benefits of EU accession are being constrained by a lack of internal growth drivers stemming from ongoing policy inertia and policy constraints to fiscal and structural reforms.”

The competitive position of the economy remained weak because of “factors such as labour market rigidities and a complicated business environment”.

Since the coalition government came to power two years ago, it had “failed to introduce reforms that would meaningfully improve the country's growth prospects”.

This reflected “political realities and the opposition from vested interests, which benefit from long-entrenched entitlements”.

Standard and Poor's estimated that the economy shrank by about 1.0 percent last year

“Contrary to our previous expectation, we now forecast a sixth consecutive year of recession in 2014. Overall, we consider real GDP (gross domestic product) per capita growth prospects - which we estimate will average 0.2 percent over 2007-2016 - to be weaker than in most EU peers.” - Sapa-AFP