Foundations for Growth and Competitiveness 2026

Croatia

While GDP per capita is steadily converging to OECD levels, gaps remain. The employment rate remains below the OECD average, particularly among youth and older adults. Labour productivity growth is subdued, reflecting a slow catch-up in total factor productivity.

Accelerating economic convergence requires reforms to enhance skills, boost innovation capacity, and improve the business environment. Promoting healthier and longer working lives is crucial for raising employment. Strengthening carbon pricing and expanding renewables deployment will enhance energy security and support sustainable growth.

Economic performance

Gaps to the average of the upper half of the OECD countries

Source: Panel A: OECD, Economic Outlook database; Panel B: OECD, Labour Force Statistics database; Panel C: OECD, Economic Outlook and Productivity databases; Panel D: OECD, Economic Outlook and Annual National accounts, GFCF by assets databases.

Selected policy gaps

Source: OECD calculations based on the Foundations for Growth and Competitiveness database.

Skills: Improve the quality of vocational education and training and raise participation in adult learning

Access to skills is a growing constraint for employers. Croatians lag behind OECD peers in core skills. Around 70% of young adults enroll in vocational education and training (VET), but many VET graduates are not in employment nor in education and training (NEET), reflecting poor alignment of skills with the labour market. Tertiary education attainment is low, and adult participation in lifelong learning is limited, especially among the older and the low-skilled.

Recommendations

✓ Implement ongoing reforms to modernise the VET schools’ curricula to better align with employers’ current and future needs and students’ interests and incorporate greater work-based learning.

✓ Link financial support for adult learning to workers' skills and adapt training content to the specific needs of older adults.

✓ Increase high-quality and affordable early education and care capacity.

Health: Enhance prevention and the quality and efficiency of care

Health outcomes are relatively low, and self-perceived health among older adults is poor. The generally poor state of health spills over into the labour market with a high number of sick days and shorter working lives. There is space to enhance prevention, improving primary care and the quality and efficiency of hospitals, still characterised by significant overcapacity.

Recommendations

✓ Increase taxes on unhealthy products, such as alcohol and tobacco, and enhance cancer screening uptake, including by expanding targeted public awareness campaigns.

✓ Introduce minimum volume requirements for specific hospital procedures and centralise complex care in high-performing specialised facilities.

Innovation: Better target R&D support

Productivity gaps with OECD countries remain large, calling for enhanced innovation and technology adoption. The share of firms applying for patents is low and public support for business R&D is limited. The uptake of R&D support schemes is hindered by high application costs for R&D grants, limited awareness, and lack of continuity between different schemes.

Recommendations

✓ Better coordinate R&D support schemes, ensure they have ongoing funding, and expand the scale of public support.

✓ Evaluate the R&D tax allowance scheme and consider making part of the R&D tax allowance refundable or extending the duration of the carry-forward option for small and young firms.

Competition: Improve regulations and strenghten public sector integrity

A business environment that weakens competitive pressures and makes investments more costly and risky contributes to low productivity. Reducing the burdens of lengthy and unpredictable regulatory procedures, for example in land use planning, and improving public sector integrity, will be key for boosting productivity growth. Improving the governance of state-owned enterprises (SOEs), is also critical to unlock growth potential.

Recommendations

✓ Clarify responsibilities for each body involved in land use planning and strengthen intermunicipal cooperation over land use policy and administration to facilitate construction projects, including by mandating cooperation among small municipalities.

✓ Continue divesting SOEs and clearly define the rationale for the state-ownership of companies, limit undue political influence, and ensure that the government’s role as an owner and regulator of markets SOEs operate in is clearly separated.

✓ Monitor post-public employment activities of public officials in at-risk positions to strengthen enforcement of post-public employment rules.

Energy security: Leverage more wind and solar energy

Renewables (hydro and nuclear) dominate the energy mix, but fossil fuels still account for 22% of power generation and Croatia remains heavily dependent on fossil fuel imports. In view of rising electricity demand due to electrification of end-uses, accelerating the deployment of wind and solar is essential to strengthen energy security and ensure sustainable growth.

Recommendations

✓ Accelerate permitting procedures for renewable energy by increasing the administrative capacity, streamlining the permitting process or launching a one-stop shop.

✓ Continue to invest in grid capacity to integrate renewables and connect resource-rich areas with demand centres.

✓ Phase out fossil fuel subsidies.

Recent progress on structural reforms

A reform to modernise the VET curriculum to strengthen work-based learning and improve its alignment with labour market needs is ongoing. In 2022, the authorities introduced training vouchers for adult learning—initially targeting digital and green skills—which were significantly expanded in both size and scope in 2024. During the same year, the government scaled up its national preventive health examination programme for individuals aged 40 and above. The government also increased R&D tax allowances and redirected EU ETS revenue toward building renovations and renewables, although energy price caps continue into 2026. In 2024 four mediation centres at commercial courts were set up. New Framework Benchmarks for the work of judges were adopted and an active judicial case management tool introduced. The use of electronic communication tools continues to expand. A new law to strengthen SOE governance and align it with the OECD Guidelines on Corporate Governance of SOEs was approved by Parliament in July 2025.