Croatia’s GDP is projected to grow by a robust 3.6% in 2024, 3.3% in 2025 and 2.9% in 2026, mostly driven by strong household consumption and investment. Employment is expected to continue growing, with the unemployment rate reaching new lows. Inflation is forecast to keep decreasing gradually and to reach 2% in 2026. The general government deficit is expected to widen in 2024 and start narrowing in 2026, while debt is set to decline further in a context of strong GDP growth.
| Indicators | 2024 | 2025 | 2026 |
|---|---|---|---|
| GDP growth (%, yoy) | 3,6 | 3,3 | 2,9 |
| Inflation (%, yoy) | 4,0 | 3,4 | 2,0 |
| Unemployment (%) | 5,1 | 4,7 | 4,6 |
| General government balance (% of GDP) | -2,1 | -2,1 | -1,9 |
| Gross public debt (% of GDP) | 57,3 | 56,0 | 56,0 |
| Current account balance (% of GDP) | 0,4 | 0,5 | 0,6 |
Growth to pick up in 2024 and soften thereafter
Croatia’s real GDP growth in 2023 was revised upwards to 3.3%, with significant positive contributions coming from all GDP components except for inventories, which fell markedly.
In 2024, Croatia’s GDP is projected to grow by 3.6%. Growth is expected to be mainly driven by private consumption, boosted by strong real wage and employment growth, and sustained investment. Government consumption is set to rise, mainly due to a comprehensive public sector wage reform that substantially harmonised public salaries across institutions and sectors, but also resulted in a large one-off increase in wages. Investment is expected to remain strong, also supported by a further acceleration in expenditure funded by the RRF, with the absorption of funds under the 2021-27 Multiannual Financial Framework (MFF) expected to pick up towards the end of the forecast period. Exports of goods are forecast to rebound solidly, despite relatively weak demand growth in Croatia’s main trading partners’ economies. However, exports of services, mainly tourism, are projected to decline in real terms, largely due to persistent significant price increases of touristic services. Overall, the contribution of net exports to growth is expected to turn negative, in a context of strongly expanding domestic demand.
GDP growth is forecast to decelerate to 3.3% in 2025 and to 2.9% in 2026, as consumption growth moderates on the back of slower wage increases. A further pick-up in the absorption of EU funds, both under the RRF and the 2021-27 MFF, is set to underpin continued investment growth, although at a slower pace. Exports of goods are expected to continue expanding in line with external demand, and exports of services should resume growth in real terms as price increases abate. As imports decelerate with domestic demand, the external sector’s contribution to growth is set to become neutral towards the end of the forecast period.
Risks to this outlook include higher than expected wage increases coupled with possible supply constraints in tourism, which could add to price pressures and hurt exporters’ competitiveness. In addition, potential supply bottlenecks in construction could delay the absorption of EU funds.
A new record-low for unemployment
Employment growth is expected to accelerate to 3.1% in 2024 owing to robust economic activity, driving the unemployment rate down to 5.1%. Labour shortages persist despite increasing inflows of workers from non-EU countries. Overall wage growth started weakening despite strong wage increases in the public sector. Over the forecast horizon, employment growth is projected to decelerate while the unemployment rate continues declining, albeit at a slower pace. As a result, wage growth is forecast to slow down further while remaining solid.
Headline inflation to reach 2% only in 2026
Headline inflation is expected to decline from 8.4% in 2023 to 4% in 2024. A milder deceleration to 3.4% is forecast in 2025, mostly due to projected energy price increases, despite lower services and food inflation. Inflation is expected to reach 2% in 2026. Inflation excluding energy and food is set to decline from 8.8% in 2023 to 4.7% in 2024. It is projected to further decrease to 2.9% in 2025, more swiftly than headline inflation, and to come at 2.2% in 2026.
Declining public debt ratio driven by strong economic growth
In 2024, the general government deficit is expected to increase to 2.1% of GDP, from 0.9% in 2023. This can be attributed to the new public wage act and social assistance measures put pressure on expenditure, with the structural deterioration largely masked by strong revenue growth. Indirect tax revenue is set to expand amid solid nominal GDP growth, while direct taxes are expected to benefit from employment and wage developments.
In 2025, the deficit ratio is forecast to remain at 2.1% of GDP. Revenue is set to continue being supported by nominal GDP growth and planned changes in property and rental income taxation. Both current and capital expenditure are projected to continue increasing. The government extended some of the measures to mitigate the impact of high energy prices until March 2025, with an expected budgetary cost declining from 0.9% of GDP in 2024 to 0.1% in 2025, thus improving the structural balance. The deficit is forecasted to narrow to 1.9% of GDP in 2026, as expenditure (mainly spending on wages and nationally financed investments) grows more slowly than revenue.
Despite the expansionary fiscal stance in 2024, the debt-to-GDP ratio is expected to decrease to 57.3% from 61.8% in 2023, due to robust GDP growth and debt-reducing stock-flow adjustments (mainly due to using cash reserves to repay parts of the maturing debt). The debt ratio is forecast to decrease further to 56 % of GDP in 2025 (driven by the still strong GDP growth) and remain at that level in 2026 despite a contractionary fiscal stance, due to stock-flow adjustments.