The economy of Croatia, the next country in line to join the European Union, unexpectedly grew at the fastest pace in four-and-a-half years in the first quarter as consumer spending and industrial output increased, reported Bloomberg.

Gross domestic product rose an annual 7 percent in the quarter, the state statistical office said on its Web site today. This is higher than the 5.5 percent median estimate of six economists in a Bloomberg survey and the highest growth since the third quarter in 2002, when the economy grew 7.04 percent.

The former Yugoslav republic, which was devastated by the Balkan civil wars of the 1990s, is ahead of Ukraine, Serbia and Turkey in negotiations to join the EU. With purchasing power at 55 percent of the EU average, the nation of 4.5 million people on the Adriatic Sea is counting on economic expansion to boost living standards and help it join the EU by the end of the decade.

Croatia began talks on June 26 in six more EU policy areas, pushing it past Turkey in the race to become the next country to join the bloc after Romania and Bulgaria entered on Jan. 1

Industrial output increased 8 percent in the quarter and rose 8.1 percent in the first five months as manufacturing gained.

Electrical equipment makers Koncar Elektroindustrija d.d. and Ericsson Nikola Tesla said net income rose five times and 23 percent, respectively, in the first quarter of 2007 on exports.

Retail sales rose 7.7 percent in the first three months of the year and 7.1 percent in April. Average net wages were 3.6 percent higher in the first quarter from the same period a year ago and gross wages rose 4.5 percent in the same period.

Unemployment fell to a 10-year low of 15.1 percent in May as demand for seasonal workers in tourism and at retailers increased.

Croatia, which began entry talks with the EU in October 2005, attracted 2.84 billion euros ($3.82 billion) in foreign direct investment last year, up from 1.42 billion euros in 2005.