Croatia

After a strong expansion in 2024, when real GDP grew at +3.9% y/y, economic momentum softened in the first half of 2025. Growth slowed as domestic demand cooled after a prolonged period of strength, with private consumption moderating despite continued gains in household incomes, leading to higher savings. Investment activity also eased following several years of rapid expansion, partly reflecting a slowdown in public investment. On the external side, export growth remained solid but was offset by resilient import demand and softer services exports, resulting in a weaker net trade contribution. Overall, the slowdown was largely cyclical and driven by temporary factors, with underlying fundamentals remaining supportive. 

Looking ahead, real GDP is expected to continue growing at relatively strong rates. Growth is projected to slow from its 2024 peak but remain above its long-term average, supported by a resilient labour market, declining financing costs and continued inflows of EU funds. Private consumption should remain a key growth driver despite some moderation, while public investment is expected to regain momentum as EU-funded projects accelerate. Croatia’s limited exposure to the US market reduces vulnerability to higher US tariffs, suggesting that external demand should remain broadly supportive. However, elevated geopolitical uncertainty could encourage precautionary savings and delay private investment, while net exports are likely to remain a modest drag on growth. We forecast annual real GDP growth of +3.2% in 2026 and +2.6% in 2027. 

Inflation remains an important cyclical risk. After picking up towards the end of 2024, inflation started to ease in 2025, albeit unevenly. Disinflation was supported by lower global energy and food input prices, favorable base effects and the lagged impact of tighter monetary conditions. However, services inflation remained persistent, reflecting robust domestic demand and a tight labor market with still-elevated wage growth. Inflation is forecast to decline only gradually, reaching 2.7% in 2026 and 2.5% in 2027, keeping Croatia above the Eurozone average. 

Structural factors remain a key medium-term vulnerability. Croatia’s business environment continues to be constrained by complex and frequently changing regulations, although their importance has gradually declined. At the same time, rising labor and production costs and persistent shortages of skilled workers and experienced managers have become increasingly binding, reflecting demographic pressures and a tight labor market. 

Cost competitiveness has deteriorated since mid-2022, driven by rapid wage growth—particularly in the public sector—outpacing productivity gains. While price competitiveness pressures have eased somewhat as inflation moderated, structural cost pressures remain elevated. These dynamics weigh on productivity growth and export competitiveness over the medium term. 

Late payments, particularly from private counterparties, remain a recurring challenge and disproportionately affect smaller firms, weighing on investment and hiring decisions. Looking ahead, companies identify labor costs, input prices and demand conditions as the main drivers of their pricing decisions, underlining the close link between labor market tightness, cost pressures and inflation persistence. Improving the regulatory framework, easing labor constraints and enhancing the business climate remain key priorities to support competitiveness and potential growth.