OECD Economic Outlook, Volume 2025 Issue 1

Croatia

GDP is projected to grow by 2.9% in 2025 and 2.7% in 2026. Private consumption growth will moderate as real income growth slows. High uncertainty and moderation in the absorption of EU Structural and Recovery and Resilience Funds will weigh on investment growth. Export growth will be affected by the weakening of foreign demand due to rising trade restrictions. Risks are related to an escalation in trade tensions, mainly through weakening demand from key European trading partners.

Fiscal prudence is needed to support disinflation and rebuild fiscal buffers to prepare for the challenges of population ageing, the green transition and higher defence spending. Efforts to enhance the regulatory framework and judicial efficacy are needed to support investment amid high uncertainty. Policies to upskill and reskill the workforce would help alleviate skill shortages and support productivity growth.

Economic growth is moderating

GDP growth was strong in the last quarter of 2024, but high frequency indicators point to a moderation in the beginning of 2025. Consumer confidence remains subdued, and retail sales growth has continued to slow in early 2025, partly reflecting consumer boycotts of supermarkets and retailers over high food prices in January and February. Harmonised headline consumer price and core inflation moderated to 3.9% and 4.2% in April, respectively, but remain high. The labour market has started to cool. The unemployment rate has remained constant since November, at a historical low of 4.6%, but vacancies have decreased. Nominal wage growth is declining but remains strong.

Croatia

1. 3-month moving average.

2. Headline inflation refers to the harmonised index of consumer prices, core inflation refers to the harmonised index of consumer prices excluding food, energy, alcohol and tobacco.

Source: Central Bureau of Statistics; and Eurostat.

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Croatia: Demand, output and prices

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Economic sentiment deteriorated in the industry sector at the beginning of 2025. Export order books are subdued, suggesting weaker foreign demand and increasing uncertainty over international trade. Croatia’s direct trade exposure to the United States is limited, but the country will nevertheless be affected by the recently increased trade tariffs on EU goods through weaker external demand from key European partners. Growth in tourism continues to moderate due to high prices. Easier financial conditions in the euro area have passed through to borrowing costs, and bank lending to the private sector is strong.

The fiscal stance will remain expansionary

The government deficit increased substantially from 0.8% of GDP in 2023 to 2.4% of GDP in 2024. The fiscal stance is expected to remain expansionary in 2025. Public sector wages were further increased in 2025 and a new aid package worth EUR 296 million (0.4% of GDP) was approved in early 2025 to support households and small and medium-sized firms, including an extension of energy price caps until September 2025, one-off payments to pensioners and vulnerable groups, and support for farmers and students. Reduced VAT rates on energy were extended into 2025 and the list of food items subject to price caps was expanded amid high inflation. Mild fiscal consolidation is projected for 2026 as energy support and one-off measures are set to be phased out. The central bank plans to introduce new macroprudential measures (debt-service-to-income and loan-to-value limits) to reduce risks related to fast household borrowing from July 2025.

Growth is set to moderate

Private consumption growth will slow as wage growth weakens. Investment will also slow amid high uncertainty, and some moderation of the absorption of EU Recovery and Resilience funds from high levels in recent years. Trade restrictions will weigh on exports mainly via weaker demand from European trading partners. Weakening demand will support a gradual decline in inflation, which will reach 2.4% by end-2026. Risks are tilted to the downside. Escalating trade tensions could further dampen demand from European trading partners. Expansionary fiscal policy and higher-than-expected wage growth may slow disinflation.

Prudent macroeconomic policies and structural reforms are needed

Support to households affected by high energy and food prices should be better targeted to avoid fiscal policy further fuelling inflation. Enhancing the regulatory framework, including by clarifying responsibilities across government levels in land-use planning, creating a one-stop shop for land rights procedures, and promoting out-of-court dispute resolution, would reduce uncertainty and encourage investment. Efforts to increase labour force participation by older and younger workers, and to attract foreign workers, combined with effective upskilling and reskilling reforms, would help alleviate skill shortages and support productivity growth.