OECD Economic Outlook, Volume 2026 Issue 1

Croatia

Real GDP growth is projected to moderate to 2.6% in 2026 and 2.4% in 2027. Consumption growth will slow, reflecting weaker real income growth amid high inflation. Investment growth will ease due to heightened uncertainty and the end of the EU Recovery and Resilience Funds in 2026. Exports will pick up moderately with the recovery of foreign demand. A prolonged conflict in the Middle East would keep energy prices elevated for longer, pushing up inflation and weighing on economic growth.

A return to fiscal prudence is needed to support disinflation, rebuild fiscal buffers and prepare for medium‑to long-term spending pressures. Untargeted energy price support should be phased out and incentives to cut fossil fuel use preserved. Faster permitting and investment in grid capacity would support renewable energy deployment and energy security. Pension reforms and policies to support workers’ health and skills would extend working lives, boosting growth as the population ages.

Economic growth is moderating, and inflation is rising

High frequency indicators point to a moderation in growth in the first quarter of 2026. The average growth of industrial production and retail sales slowed in the first quarter of 2026 relative to the last quarter of 2025. The evolving conflict in the Middle East weighed on services, retail trade, and consumer confidence in April, although industrial sentiment remained resilient. Harmonised consumer price inflation rose to 5.4% (year-on-year) in April, driven by increases in food and energy prices. Core inflation remains elevated at 3.7%, reflecting sticky service prices inflation. The unemployment rate remains at historically low levels and nominal wage growth continues to be strong, albeit easing.

Croatia

Source: Eurostat.

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Croatia: Demand, output and prices

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Croatia is highly dependent on fossil fuel imports, which meet around 60% of its energy needs, exposing the economy to global energy price shocks, although its direct exposure to energy imports from the Middle East is low. Electricity, gas and fuel prices increased by 11.3% in April (year-on-year). The government has capped electricity and gas prices in March until October 2026, and fuel price caps are reviewed every two weeks. At the end of March, oil reserves were considered sufficient to support the next three months of economic activity, and at the beginning of April the government announced the release of 35 thousand tonnes of its emergency diesel reserves (about 5%).

Fiscal policy will be broadly neutral in 2026, with consolidation in 2027

In March 2026, the government introduced a new aid package worth EUR 449 million (approximately 0.5% of GDP) to mitigate the impact of rising energy prices on households and business. This includes energy price caps, cash compensation for energy costs of beneficiaries of social assistance and unemployed veterans, and monetary support for farmers and fishermen. The package also contains measures to strengthen energy resilience, including support for renewable energy deployment and the modernisation of district heating infrastructure, financed through EU Recovery and Resilience Funds. In addition, the reduced VAT rates on heating and gas were extended until March 2027.The government deficit is projected to remain close to 3% of GDP in 2026 and 2027. The fiscal stance is broadly neutral in 2026 and will turn contractionary in 2027 as energy support measures are assumed to be withdrawn and the drawing of EU recovery and resilience funds ends.

Growth is set to moderate

Private consumption growth will ease as real disposable income growth slows, due to the energy price shock and a slower nominal wage growth. Investment growth will weaken due to heightened uncertainty and the end of the EU Recovery and Resilience Funds. A gradual strengthening of foreign demand from the end of 2026 will support exports. After rising in the first two quarters of 2026, headline inflation will moderate as energy price pressures ease. Core inflation will ease as productivity growth picks up and wage growth moderates. Risks are tilted to the downside. A prolonged conflict in the Middle East would keep energy prices elevated for longer, resulting in higher inflation and weaker economic growth. Elevated uncertainty and high inflation in Europe could weigh on tourism activity. Croatia’s heavy reliance on food imports - covering around half of the country’s food consumption – also exposes it to global price shocks including for fertilisers.

Fiscal policy should be prudent while structural reforms can spur growth

A tighter fiscal policy stance is needed to support the disinflation process and build fiscal buffers for future spending pressures. Untargeted energy price support measures, such as reduced VAT rates on heating and gas and caps on electricity, gas and fuel prices, should be phased out, which would also strengthen incentives to reduce fossil fuel consumption. Streamlining the permitting process, launching one-stop shops and investing in grid capacity are needed to accelerate renewable energy deployment. Pension reforms, such as tightening early retirement pathways and raising the statutory retirement age, would help mitigate ageing-related spending pressures. Measures to improve the health and skills of the ageing population—including enhancing prevention, promoting professional rehabilitation after sickness, and boosting participation in adult learning —would help to bring more people into the labour force and sustain growth.