ZAGREB, 20 May (Hina) - The Croatian economy is expected to continue growing at solid rates this year and next, despite increased uncertainty in global trade, while inflation is forecast to fall to 2% next year, according to the European Commission's Spring 2025 Economic Forecast published on Monday.
"Croatia’s exposure to the US-tariff shock is low compared to other Member States and a robust domestic demand is expected to provide for solid GDP growth despite heightened trade-related uncertainty," the Commission said.
Growth is expected to be mainly driven by private consumption, underpinned by real wage and employment growth.
After growing by 3.9% in 2024, economic activity in Croatia is projected to expand by 3.2% in 2025 and 2.9% in 2026. Compared to the autumn economic forecasts from last November, the Commission slightly lowered its growth estimate from 3.3% to 3.2% for this year, while maintaining the same forecast of 2.9% economic growth for next year.
Croatia continues to record significantly higher growth rates than the EU average. This year, the euro area is expected to see an average growth rate of 0.9%, and 1.4% next year. In the EU as a whole, growth is forecast at 1.1% this year and 1.5% next year.
Only four member states have higher growth projections than Croatia this year - Malta with 4.1%, Denmark with 3.6%, Ireland with 3.4% and Poland with 3.3%.
Unemployment to continue falling, employment and inflation growth to be slower
The unemployment rate is projected to fall from 5% last year to 4.6% in 2025 and 4.5% in 2026 as employment continues to grow, but it is set to decelerate from last year's growth of 6.1% to 2.6% this year and 1.1% in 2026.
In 2025, inflation is projected to decline to 3.4% from 4% in 2024, and reach 2% in 2026, driven mainly by services and food inflation. The expected fall in international energy commodity prices is forecast to lead only to a small decline in energy inflation as government’s energy price measures expire in October 2025.
The average inflation in the euro area is projected at 2.1% this year and 1.7% in 2026.
In 2024, Croatia's general government deficit increased to 2.4% of GDP, while this year it is forecast to increase to 2.7% and edge down to 2.6% in 2026.
The debt-to-GDP ratio reached 57.6% in 2024 and is forecast to decrease to 56.3% in 2025 and increase to 56.4% in 2026.
Investment is projected to continue growing, although more slowly, further supported by increased absorption of EU funds, notably from the Recovery and Resilience Facility. After last year's growth of 9.99%, investment is projected to increase 4.3% this year and 3.2% in 2026.
Government consumption is set to rise with further increases in compensation of public sector employees. Exports of goods are forecast to continue growing at solid rates, despite rising trade protectionism that adversely affects global economic activity and demand from some of Croatia’s main trading partners.
Wage growth is expected to slow down
Conversely, exports of services are expected to increase mildly in real terms, as continued price increases of touristic services weigh on competitiveness. With imports outpacing exports, the contribution of net exports to growth is set to remain negative.
Consumption growth is projected to slow down as wage growth is expected to slow down, both in nominal and real terms.
Risks to this outlook include a higher-than-expected impact of global uncertainty on private investment and consumption. Stronger than anticipated wage increases could add to price pressures and hurt exporters’ cost competitiveness. Potential supply bottlenecks in construction could delay the absorption of EU funds.
