Germany
Italy
Bosnia & Herzegovina
Slovenia
Hungary
AustriaGrowth still driven by the dual engine of EU funds and tourism
Growth is expected to remain solid in 2027, in the same vein as 2026, although it should gradually moderate after several years of strong expansion. Household demand will remain the main driver of activity, supported by a tight labour market that is boosting wages. The unemployment rate remains among the lowest in the EU (3.8% in April 2026), while nominal wages continue to rise at a sustained pace (+8.4% year-on-year in March 2026). However, the tightening of credit conditions following recent macroprudential measures (a debt-service-to-income cap of 45% and a loan-to-value limit of 90%), together with an uncertain global economic environment, could gradually dampen momentum in the second half of 2026 and into 2027. Inflation will remain relatively high (5.8% year-on-year in April 2026), mainly driven by rising energy prices (+17.8%), as Croatia remains highly dependent on hydrocarbon imports. Nevertheless, government measures to cap energy prices and targeted support schemes are expected to partly mitigate the impact on households and businesses in 2026.
Investment will remain the other pillar of growth, supported by the continued absorption of EU funds. Croatia is among the best-performing member states in utilising the Recovery and Resilience Facility (RRF), being the recipient of a package of nearly EUR 10 billion or the equivalent of around 12% of GDP. The country has already received close to three-quarters of these funds, including an eighth tranche of EUR 897 million in March 2026, and is expected to absorb almost all of the remaining amounts before the August 2026 deadline. These funds will continue to support investments in transport infrastructure, particularly the modernisation of the railway network, the digital transition, healthcare infrastructure, and energy diversification. The expansion of the Krk liquefied natural gas (LNG) terminal and investments in renewables should also strengthen energy security and reduce vulnerability to external shocks. Expected accession to the OECD by the end of 2026 could further enhance the country’s attractiveness to foreign investors, already boosted by its entry into the Schengen Area and adoption of the euro in 2023.
Tourism will remain one of the main drivers of economic activity. Investments in hotel infrastructure, such as the EUR 200 million Pical Resort project in Pore?, along with the expansion of airport capacity and the launch of new international routes—particularly in Dubrovnik in 2026—will continue to support the sector’s move upmarket. However, the decline in building permits issued, likely due to rising construction costs, could lead to a slowdown in residential activity. Moreover, following the strong rebound observed after the pandemic, growth in visitor numbers is expected to gradually slow due to persistent capacity restrictions—especially in Split, Zadar, and Dubrovnik—and to rising prices.
Twin deficits will remain under pressure
After widening since 2024, the public deficit is expected to stabilise at around the EU threshold of 3% of GDP in 2026 and 2027. Expenditure will remain elevated, driven by increases in public sector wages, pension payments, social benefits, and defence needs. However, tax revenue growth—supported by household consumption and targeted measures, including the strengthened 2024 property tax on second homes—should prevent any further deterioration of the deficit. Moreover, a large share of investment in infrastructure, energy transition, and digitalization will continue to be financed through European mechanisms. Despite the continued expansionary fiscal stance, the debt-to-GDP ratio is expected to continue its downward trajectory, supported by robust economic growth and favourable financing conditions since joining the euro area.
Croatia has a significant structural trade deficit, the result of its dependence on imports of capital goods, manufactured products and hydrocarbons. While tourism generates a substantial services surplus, it no longer fully offsets the deficit in goods. Strong domestic demand, particularly driven by investment, will continue to support imports, while exports of goods (food products, industrial intermediates, electrical equipment, clothing, wood and pharmaceuticals) will continue to be damped by moderate growth of its key trading partners, notably Germany, Italy, Slovenia, and Bosnia and Herzegovina. Higher energy costs are also expected to temporarily increase the import bill in 2026 before moderating in 2027. Foreign direct investment (FDI), mainly originating from the European Union, together with EU funds, will remain the main source of external financing, with a notable concentration in financial services (25%), manufacturing (18%), and real estate (17%).
A durably tense local political environment
The April 2024 parliamentary elections saw the Croatian Democratic Union (HDZ), a conservative centre-right party led by Prime Minister Andrej Plenkovi?, retain its dominant position, despite a slight decline in its parliamentary representation (61 seats compared to 66 previously, out of 151 in the Sabor). The HDZ formed a coalition with the Homeland Movement (DP, 14 seats), enabling it to secure a third consecutive term, while the centre-left opposition (mainly represented by the SDP) made gains amid strong voter turnout. The political environment is likely to remain tense following the landslide re-election of Zoran Milanovi? (former SDP) as President in January 2025, with 74.7% of the vote. This outcome confirms the polarised political landscape and the sometimes difficult cohabitation between Zoran Milanovi?—who is often critical of certain EU and NATO positions—and Andrej Plenkovi?, who is firmly pro-European. Nevertheless, the President’s limited powers reduce the risk of institutional deadlock, and the government is expected to maintain sufficient stability until the next parliamentary elections scheduled for 2028.
On the social front, the country faces major demographic challenges, with rapid population ageing and significant emigration of young skilled workers. The government has announced measures to boost the birth rate, including doubling family allowances.
In terms of foreign policy, Croatia has border disputes with several neighbours, notably Slovenia over the Bay of Piran and Serbia regarding their common border along the Danube. The country also remains divided over its involvement in support for Ukraine, with President Milanovi? recently vetoing Croatia’s participation in the NATO training mission for Ukraine.