OECD Economic Outlook, Volume 2025 Issue 2

Croatia

Real GDP is projected to grow by 3.2% in 2025, 2.7% in 2026 and 2.4% in 2027. Private consumption growth will slow as real income growth moderates. Investment will remain strong in 2026 but ease in 2027 as the EU Recovery and Resilience Facility ends. Exports will pick up moderately as foreign demand strengthens. Risks are related to an escalation in geopolitical and trade tensions, which would slow growth through weakening demand from key European trading partners.

A return to fiscal prudence is needed to support disinflation, rebuild fiscal buffers and prepare for medium‑to long‑term spending pressures. Addressing regulatory barriers to accelerate renewables deployment, including by streamlining permitting procedures, would speed up the energy transition. Enhancing land use planning and tenant-landlord regulations would raise housing affordability, residential mobility and productivity.

Domestic demand continues to support economic growth

GDP growth was strong in the second quarter of 2025, at 1.1% quarter-on-quarter (non-annualised), driven by robust domestic demand. High frequency indicators suggest sustained, though more moderate growth in the near term. Retail sales growth moderated in the third quarter relative to the second quarter of 2025 and consumer confidence remains subdued. Surveys of expected export orders remain weak. Harmonised consumer price inflation moderated to 4% (year-on-year) in October as food and energy price inflation slowed. Annual core inflation is easing but remains elevated at 3.8%, reflecting sticky service prices inflation. The labour market is tight but continues to show signs of cooling. The unemployment rate, at 4.7% in September, is close to its historical low, though job vacancies have decreased. Nominal wage growth is strong but slowing.

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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Growth of goods exports (year-on-year) outpaced that of imports in August and September. Direct trade exposure to the United States is limited, but Croatia is indirectly affected by the introduction of tariffs through weaker demand from key European partners. Tourist stays slowed during the high season compared to last year, but stronger pre-season activity kept cumulative growth from January to August steady. Bank lending to the private sector is strong. However, demand for consumer and housing loans has started to moderate following the introduction of borrower-based macroprudential tools by the central bank in July.

Mild fiscal consolidation is set to start in 2026

The fiscal stance remained expansionary in 2025. In October 2025, the government revised the general government deficit target for 2025 up to 2.9% of GDP, following a deficit of 1.9% of GDP in 2024. In September 2025, the government extended cost-of-living support measures, such as energy price caps, until March 2026, albeit with a reduced overall envelope (0.2% of GDP). In November 2025, the government approved a draft budget for 2026, targeting a general government deficit of 2.9% of GDP. The projections assume moderate structural consolidation in 2026 and 2027, in line with the medium‑term fiscal-structural plan. Fiscal tightening is stronger in 2027 as the drawing of EU Recovery and Resilience Facility funds comes to an end and is only partly offset by additional drawing of EU structural funds. The national bank has announced plans to raise the countercyclical capital buffer rate from 1.5% to 2% as of January 2027.

Growth is set to moderate as domestic demand softens

Private consumption growth will moderate as disposable income growth slows, partly due to the fading effects of the public sector wage reform. Investment growth will remain strong in 2026 but slow in 2027 as funding from the EU Recovery and Resilience Facility comes to an end, which will be only partly offset by stronger drawing of EU cohesion funds. The gradual strengthening of foreign demand will support exports. Core inflation will ease as wage growth moderates and productivity picks up. Risks are tilted to the downside. An escalation of trade tensions would dampen demand from European trading partners. Potential bottlenecks in the construction sector could delay the absorption of EU funds. Continued expansionary fiscal policy could slow the pace of disinflation.

Fiscal prudence and structural reforms are needed to support sustainable growth

A tighter fiscal policy stance is needed to support the disinflation process and build fiscal buffers for future spending pressures. To this end, consolidation measures should be specified to meet medium‑term fiscal targets. Ad hoc energy and food price support measures should be phased out, while protecting vulnerable households through standard targeted income support. Streamlining the permitting process or launching one-stop shops can help accelerate investment in renewable energy. Improving land use policy and construction-related administrative procedures would strengthen housing supply and improve housing affordability. Reforming tenant–landlord regulations to better balance rights could help expand the rental market, supporting greater residential and labour mobility and productivity.