Macroeconomic projections aim to predict and understand the future state of the economy on a broad scale. They include the projections of economic growth, inflation, wages, unemployment and trade. The Eurosystem and European Central Bank (ECB) staff produce macroeconomic projections for the euro area and the wider global economy. Macroeconomic projections contribute to the ECB Governing Council’s assessment of economic developments and risks to price stability (ECB). Since joining the euro area, the Croatian National Bank (CNB) has been producing two basic Eurosystem macroeconomic projections, along with the ECB and other national central banks. These projections are published in June and December. In addition, twice a year, in March and September, the ECB independently updates these projections for the euro area, while the CNB independently updates the projections for Croatia.

Global economic expectations have deteriorated due to the growing protectionism and geopolitical instability. Although there are still many uncertainties surrounding the implementation of tariffs by the US administration, their negative impacts on the economic activity could be felt worldwide, especially in China, Mexico and Canada, the countries with strong trade links to the United States. Potential additional global price pressures will also depend on the countermeasures to be implemented by the US trade partners in response to introduced tariffs. According to current projections, US economic growth is expected to converge gradually to lower levels, and Chinese economic growth has also been revised down as it will be additionally restrained by long-lasting trade tensions between China and the US. Expected economic growth in the euro area in the current year has been revised downwards by 0.2 percentage points, subject to negative risks stemming from the US introducing tariffs on the imports of European products. Raw material prices have been revised upwards from the previous projection, with oil prices influenced by strong demand from the US and China and gas prices in the European market increasing owing to a cold winter. However, the weeks after the assumptions of the projection had been finalised^[1] saw growing concerns about the impact of the tariffs on the global economy, with the result that oil prices decreased again and, due to advances in the negotiations on the end of the war in Ukraine, gas prices corrected too. Agricultural raw material prices, especially the prices of cocoa and coffee, have been growing strongly because of supply-side restrictions caused by adverse weather conditions. Industrial raw material prices have been relatively stable, although negative risks have built up amid new US tariffs on aluminium and steel. Monetary policy has remained cautious on the back of rising uncertainty: the Fed paused interest rate cuts due to inflation risks, while the expectations regarding the ECB's policy were mostly unaltered prior to the finalisation of the projection. Due to an expected slower decrease in US interest rates than in euro area interest rates, the US dollar strengthened by about 2% against the euro relative to the previous projection.

After having accelerated to 3.8% in 2024, Croatia’s real GDP growth could decelerate on average to close to 3.0% in 2025 and 2026. Domestic demand could continue to strongly support real GDP growth, although providing a smaller contribution than in 2024. The beginning of this year could be marked by the stagnation of economic activity, due primarily to the weakening of personal consumption, following the boycotts of retail chains in January and February. However, these developments should be temporary. Personal consumption is expected to strengthen again over the remainder of the projection horizon, although its current growth could still be weaker than in 2024 because of an anticipated slowdown in the growth of household real disposable income. Investment growth could also decelerate, after having averaged at double-digit figures for three years, but it could remain solid, given the increasing contributions of EU funds and market expectations about the improvement of financing conditions. In addition, the projected strengthening of foreign demand, although weaker than expected, will contribute to a further recovery of goods and services exports. The growth of services exports could be relatively mild, in view of the high level of tourism services exports and deteriorated price competitiveness. The growth of total imports could also decelerate, in line with a slowdown of domestic demand growth, but the contribution of net foreign demand could remain negative. Risks to real GDP growth seem to be slightly negative, which is primarily related to heightened geopolitical tensions. On the other hand, the EU-wide increase in military expenditures aimed at strengthening security could have a positive impact on economic growth.

Croatia’s labour market is still robust, so that the year 2025 is expected to see continued, although subdued, employment growth, with the unemployment rate dropping below 5% and wage growth decelerating. Following the 3.3% increase in the number of employed persons in 2024, employment continued to grow relatively strongly at the beginning of 2025. Employment could increase by 2.5% on an annual level in 2025 and slow down gradually to 1.8% in 2026. The number of unemployed persons is expected to decrease further over the projection horizon, although the decrease should be less pronounced than the increase in the number of employed persons, given the historically low unemployment and the unemployment rate that stands below the long-term average. The LFS unemployment rate could amount to 4.7% in 2025 and drop gradually in 2026. The average nominal gross wage grew by 15% in 2024 (similarly as in 2023). Assuming that the end-2024 wage dynamics persists and taking into account the agreement concluded between the public sector trade union and the Government of the Republic of Croatia, the average nominal gross wage could be anticipated to rise by 8.5% in 2025 and the real wage by 5.5%. Wages are expected to continue to increase over the remainder of the projection horizon, albeit at a slower pace.

Although the inflation projection has been revised slightly upwards from the December projection, inflation is still expected to ease gradually over the projection horizon. The average annual consumer price inflation rate (HICP) could decelerate to 3.7% in 2025 (from 4.0% in 2024) and drop further to 2.6% in 2026. After a temporary acceleration in late 2024 and early 2025 on the back of the build-up of inflationary pressures in the food, services and energy components, inflation is expected to decelerate almost continuously in the remainder of the year. The main contribution to the decrease in average annual inflation could be made by a slowdown in core inflation, which could, under the influence of restrictive monetary policy and weakening demand, decrease to 3.2% in 2025 from 4.8% in 2024. The deceleration of overall inflation could also to a smaller extent reflect a decrease in average annual food inflation. In contrast, the average annual energy inflation rate could accelerate sharply in 2025, predominantly as a result of administrative increases in the prices of gas, electricity and heating in late 2024 and early 2025. The average annual overall inflation rate could decelerate additionally in 2026, mirroring a slowdown in all its main components. The inflation projection has been revised slightly upwards from the December projection, primarily because of higher than expected inflation in late 2024 and early 2025. The upward revision is to a smaller extent also due to more unfavourable assumptions about movements in the global prices of energy, although these prices dropped after the assumptions had been finalised. Overall inflation could thus be 0.2 percentage points higher in 2025 and 0.1 percentage point higher in 2026 due to the higher expected growth of energy prices and core inflation, while food inflation could be somewhat lower than expected in December. Risks related to inflation are assessed to be balanced, although still elevated. Upside risks to inflation include geopolitical tensions and increased defence spending, which could boost the prices of energy and other raw materials, trade barriers, adverse weather conditions and a stronger than expected wage growth. In contrast, inflation could be lower than expected as a result of a potentially weaker economic growth and, in turn, weaker demand, stronger impact of restrictive monetary policy and energy prices holding steady at their current levels, lower than the ones assumed in the projection, or decreasing additionally.

The positive current and capital account balance, which already decreased noticeably in 2024, is expected to deteriorate even more over the projection horizon. The current and capital account surplus is expected to decrease to 0.7% of GDP in 2024 from 3.3% of GDP in 2023. The deterioration of the overall balance is primarily due to unfavourable trends in trade in services, given the weak growth of tourism revenues and the considerable acceleration of expenditure growth, that is, tourism consumption of residents abroad. In addition, the goods trade balance deteriorated slightly in 2024 in consequence of the robust growth of goods imports amid strong domestic demand, while goods exports also continued to record very good results. The inflows from EU funds shrank considerably from 2023 because the use of funds allocated under the previous financial envelope and those related to the reconstruction of earthquake-hit areas had ended. The current and capital account balance is expected to be balanced in the current year and shift to slightly negative territory (-0.2% of GDP) in 2026. The continued worsening of the balance could mainly arise from foreign trade in goods and services due to the expected faster growth of domestic demand than foreign demand. The deterioration could be the most noticeable in the exchange of tourist services. Income account expenditures are expected to continue to rise, with the rise mostly driven by the growing earnings of foreign workers in Croatia. Risks to economic relations with foreign countries have remained predominantly negative and increasingly pronounced. In addition to the higher prices of energy and other raw materials, which could bring about a sharper deterioration of the foreign trade balance, the prevailing negative risks are related to the US trade policy, with the imposition of tariffs on EU countries set to additionally strengthen the negative effects of heightened trade uncertainty. The tourist sector is also exposed to negative risks; in addition to adjusting to climate-related and other challenges, the recovery of its price competitiveness will be an important precondition for continued revenue growth.

The European Central Bank (ECB) published its spring projection for the euro area, available here.

Macroeconomic projections for Croatia
(year-on-year change, unless otherwise indicated)

Note: The external and technical assumptions of the ECB were finalised on 7 February 2025 and the macroeconomic projections for Croatia on 10 March 2025.

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1. The external and technical assumptions of the projection were finalised on 7 February 2025. ↑