Croatia's real GDP was 10.3% higher than pre-pandemic, showing increasing resilience to economic shocks thanks also to the reforms and investment deployed under the recovery and resilience plan (RRP). The strong performance of Croatia's external sector continues. Exports of goods were quick to recov Contact online >>
Croatia''s real GDP was 10.3% higher than pre-pandemic, showing increasing resilience to economic shocks thanks also to the reforms and investment deployed under the recovery and resilience plan (RRP). The strong performance of Croatia''s external sector continues. Exports of goods were quick to recover from the pandemic and
The latest macroeconomic forecast for Croatia. 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.
These positive trends continued in the first half of 2024, but growth has become increasingly dependent on consumption and public investment, largely driven by rising wages, expansionary fiscal policy, and the inflow of EU funds.
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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.
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.
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.
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 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.
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.
European Economic Forecast. Autumn 2024 - Croatia
Croatia''s economic activity has been consistently outpacing average growth in the EU over the last three years, and in 2023 Croatia''s GDP per capita (in PPS) reached 76% of the EU average, up from 67% in 2019. These positive trends continued in the first half of 2024, but growth has become increasingly dependent on consumption and public investment, largely driven by rising wages, expansionary fiscal policy, and the inflow of EU funds. At the same time, productivity growth has been relatively subdued.
Moreover, the tourism sector, one of the key drivers of economic growth over the past three years, is showing signs of reaching peak capacity. Dependence on the tourism sector makes the economy vulnerable to shocks and raises sustainability concerns due to its pressures on local infrastructure and the environment. Accelerating productivity growth will be essential for sustaining income convergence in the medium to long term. However, Croatia''s overall macroeconomic imbalances remain contained, given a robust banking sector, a positive current and capital account and public debt that has fallen to close to 60% of GDP.
Last Updated:Oct 24, 2024
The World Bank has been a partner to Croatia over 30 years. Since its first loan in 1994 for emergency reconstruction of war-damaged infrastructure, the World Bank has supported more than 50 projects, totaling almost $5 billion and provided knowledge and technical assistance to help strengthen institutions and support policymaking through more than 330 reports and studies.
On April 7, 2023, the World Bank''s Board of Directors approved the Performance and Learning Review (PLR) of the Croatia CPF 2019-24, confirming that the strategy continues to be relevant as it allows the WBG to respond flexibly to the country''s unforeseen and emerging needs.
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