By Zoran Radosavljevic
ZAGREB, Jan 11 (Reuters) - Croatia's conservative opposition won a narrow presidential victory on Sunday, capitalizing on popular discontent over economic decline and setting down a marker for parliamentary elections later in the year.
Kolinda Grabar-Kitarovic, a former diplomat, can expect months of tense cohabitation with the Social Democrat-led government before Croats vote again in the general election due in late 2015.
The job is largely ceremonial, but her win may signal a comeback for the opposition HDZ.
With 99.3 percent of votes counted, Grabar-Kitarovic was ahead by the thinnest of margins -- 50.40 percent to 49.60 percent for incumbent Ivo Josipovic.
She told her supporters: "There is no room for triumphalism ... Let's work for the prosperity of our country."
In Croatia, the president cannot veto laws but has a say in foreign policy and defense.
After six years of recession, unemployment is running at 19 percent in the ex-Yugoslav republic of 4.4 million people, which joined the European Union last July. High taxes and poor administration hamper business and the economy is not expected to grow in 2015.
"I expect a certain shift in foreign policy, with a little more focus on NATO and the EU and a little less on the (Balkan) region," said Andjelko Milardovic of the Institute for Migrations, a Zagreb-based think-tank, adding the result was a pointer to the parliamentary election.
Josipovic, who was seeking a second five-year term with the support of the increasingly unpopular ruling Social Democrats, won the first round of the election on Dec. 28 by a narrow margin.
Grabar-Kitarovic, 46, a former foreign minister and ambassador to Washington, campaigned on the need for a change of course and a more active head of state to help the country overcome its worst economic crisis since independence in 1991. She takes office as Croatia's first woman president on Feb. 19.
The HDZ ruled Croatia from its first democratic election in 1990 until its founder, President Franjo Tudjman, died in December 1999. Since then it has alternated in power with the Social Democrats but has never regained the presidential post. (Editing by Matt Robinson/Ruth Pitchford)