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. 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 (ESB). 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.

OVERVIEW OF CNB’S AUTUMN MACROECONOMIC PROJECTIONS FOR CROATIA – SEPTEMBER 2026

The global economy continued to grow at a relatively robust pace in mid-2026 amid unstable and tense relations between the conflicting sides in the Middle East fuelling sharp fluctuations in energy prices at elevated levels. Compared with the projection of June 2026, global economic growth, excluding the euro area, is still expected to stand at 3.1%, while projections for 2027 and 2028 have been increased slightly, to 3.3% and 3.4% respectively. The global trade outlook has improved considerably, largely thanks to a strong investment cycle linked to the development of the AI infrastructure. This is also reflected favourably on foreign demand for exports of the euro area, which could, however, derive less benefit from that than other major economies due to the lower share of AI-related activities in its export structure. At the same time, in line with market expectations, the expected crude oil prices have been lowered slightly and gas and electricity prices increased under the baseline scenario relative to the June projection^[1]. It is still assumed that energy prices will drop relatively rapidly, but this assumption remains subject to exceptional uncertainty, with its effects further amplified by the strong growth of crack spreads in fuel production. At the global level, long-term bond yields also rose noticeably, partly due to the high borrowing needs of individual economies and companies investing in the AI development.

Euro area growth is still expected to pick up over 2027 and 2028, following a slowdown this year, and inflation is expected to gradually weaken. The expected GDP growth has been revised upwards for this and the following year and inflation has been revised upwards as of the following year, so that it could remain slightly above the target in 2028. As projected by the ECB, the growth of euro area economic activity, having decelerated to 0.9% in 2026, could pick up again in 2027, to 1.4%, and further to 1.5% in 2028, assuming a gradual decline in energy prices, a reduction in uncertainty over the Middle East conflict and a recovery in consumer and business confidence, a robust labour market, stronger investment in defence and the AI-related infrastructure and stronger external demand. Projected developments in 2026 and 2027 are slightly more favourable than previously expected, which is due to improved external assumptions and better economic performance than expected in the June projection. Increased energy prices will continue to generate inflationary pressures in the short term. However, as they are expected to decrease, inflation could drop from the expected 3.0% in 2026 to 2.5% already in 2027 and amount to 2.1% in 2028. The inflation projection has remained the same for this year and has been revised upwards for the following two years compared with the June projection.

Croatian economy could grow at an average rate of about 2.3% over the projection horizon, which is close to the rate projected in June. Real GDP growth is still expected to stand at 2.4% in 2026, but with a slightly larger contribution from foreign demand and a somewhat smaller contribution from domestic demand to overall growth than forecast in the June projection. Growth has decelerated markedly from 2025, reflecting weaker domestic demand, partly related to the adverse effects of the war in Iran on economic activity, notably through rising energy prices and deteriorating confidence, as well as slower real income growth and a more restrictive fiscal policy. After a very weak growth in the first six months of this year, activity is expected to strengthen in the second half of 2026 on the back of the significant strengthening of retail trade and industrial production in July, the still strong income growth associated with a robust labour market, as well as the expected stronger absorption of EU funds by the end of the year. The expected strengthening of growth in the second half of the year should result in a positive carry-over effect, with the result that the growth rate in 2027 could be similar to that in 2026 despite a somewhat weaker profile of quarterly growth. The positive carry-over effect could be particularly pronounced when personal consumption is concerned, whose annual growth rate might considerably strengthen, although the slowdown in real income growth is expected to continue, and the savings rate is expected to decline only slightly from a very high level. Annual investments growth could decelerate sharply due to the smaller use of funds under the Recovery and Resilience Facility (RRF), which is expected to peak in 2026, while the strengthening of foreign demand is expected to boost gods and services exports. In 2028, a continued slowdown in real income growth and a somewhat weaker use of EU funds could result in a slight slowdown in economic growth.

The labour market in Croatia is expected to remain strong, but the growth of employment and wages could slow down. Employment could increase by 0.8% on an annual level in 2026, which is close to the value projected in June, following the 2.5% growth rate in 2025, and it is expected to slow down gradually over the remaining projection horizon. Unemployment could continue to decline, but given the historically low level and the unemployment rate that is lower than the estimated natural rate, the increase in employment will continue to depend heavily on the strengthening of participation and the import of foreign workers. The LFS unemployment rate could only edge down over the projection horizon, to 4.6% in 2028 from 4.9% in 2025. As regards labour costs, wages are expected to grow somewhat faster than previously expected due to the better performance of the private sector. The annual growth of nominal gross wages could stand at 8.3% in 2026, after reaching 10.8% in 2025. In 2027 and 2028, nominal and real wage growth could continue to decelerate and converge further towards an increase in economic productivity.

The projected inflation has been revised downwards for 2026 and 2027 from the previous projection, taking into account the lower-than-expected performance, and could slightly exceed 4.0% in 2026 and decline gradually after that. The average annual HICP inflation rate is currently expected to slow down to 4.1% in 2026 from 4.4% in 2025, despite energy price hikes. The decrease in inflationary pressures is due to a slowdown in domestic demand and wage growth, subdued growth in foreign demand for tourist services, partly related to the already high price level, as well as weaker import pressures, including on the basis of import prices of food raw materials on the global and European markets. Assuming a gradual fall in energy prices, continued restrictive fiscal policy and weakening domestic demand, inflation can be anticipated to decrease further over the projection period and drop to 2.8% in 2028. Inflationary pressures related to adverse weather conditions, which could primarily push up food prices, could act in the opposite direction. Inflation measured by the national consumer price index (CPI) is also expected to drop, although its annual rate could accelerate temporarily to 4.3% in 2026, given the higher share of energy and administered services prices in the consumer basket of residents than in the HICP.

The projection of the current and capital account of the balance of payments continues to expect the deficit to stagnate following its further deepening this year, although it is much more favourable than the previous projection, primarily due to a more favourable expected goods trade balance. The current account deficit would increase from 3.5% of GDP in 2025 to 4.4% of GDP in 2026, with a further deterioration of the goods trade balance and a slight decrease of the services trade surplus. However, compared to the previous projection, the 2026 current account balance has improved by around 1 percentage point of GDP, mainly due to lower than expected imports in the previous part of the year. Expectations regarding tourism revenues are also slightly more favourable, predicting growth of around 4% this year. On the other hand, the continued strong growth of tourist consumption by residents abroad and higher expenditures in the primary income account associated with the growing profits of enterprises owned by non-residents have an unfavourable effect on the overall balance. The deterioration of the current account balance is partially mitigated by strong inflows from EU funds, linked to the intensified use of the RRF funds in the last year of its implementation, with the result that the capital account surplus could increase from 1.9% of GDP in 2025 to 2.6% of GDP in 2026. After the end of the RRF, total inflows from EU funds are expected to decline, which could be only partially mitigated by a more intensive use of cohesion and other funds from the current financial envelope, so that the capital account surplus should also decrease. The current account deficit should stabilise after 2026 and continue to drop due to the strengthening of export capacities and productivity and the continued growth of tourism revenues.

The projections of economic growth and inflation are still subject to significant levels of uncertainty, dominated by risks to the downside for growth and to the upside for inflation. The main sources of uncertainty are still geopolitical tensions, in particular the war in the Middle East, which is causing disruptions in energy supplies and increasing its prices on the global market. Risks to higher food price inflation stem from possible extreme weather conditions that may further exacerbate the rise in food raw materials prices, visible on the global market since the beginning of the year. However, growth could be higher and inflation lower than forecast in the event of an earlier de-escalation of tensions in the Middle East. The ability of the public and private sectors to successfully utilise available EU funds by the end of the period will have a strong impact on growth.

In view of heightened uncertainty regarding the duration and intensity of the war in the Middle East and its impacts on raw material prices, global supply chains and financial markets, the CNB’s baseline projection has been complemented by alternative hypothetical scenarios, as in the June projection. The methodological approach to the design of the scenarios continues to be based on market-implied distributions of the probability of developments in energy prices. The adverse scenarios result in a negative impact on the domestic economy over the whole projection horizon, as primarily evident in the weakening of domestic demand caused by the diminished household purchasing power and a reduction in consumer and business confidence as well as a slower export dynamics brought about by the weakening of foreign demand. Inflation, on the other hand, could be considerably higher relative to the baseline scenario due to the indirect and secondary effects of the additional growth of energy prices. Under the milder scenario, which assumes a relatively fast decrease in energy prices, GDP growth is somewhat stronger and inflation lower throughout the entire projection horizon relative to the baseline scenario. Alternative scenarios do not include potential additional monetary or fiscal policy responses except the interest rate path embedded in the projection based on market expectations, nor do they identify additional channels through which the war in the Middle East might impact economic developments.

Table 1 Current macroeconomic projections for Croatia
(year-on-year change, unless otherwise indicated)

Table 2 Projection of the gross domestic product and the harmonised index of consumer prices

Source: CNB.

1. Projection assumptions were finalised on 20 August. ↑