HNB: The Economy is Growing, Inflation is Falling, and Tourism is Facing Challenges

Economic growth this year and next will be stronger than the September forecasts, the inflation rate will continue to decline, and wages will rise somewhat more slowly, while the famous (overly) expensive apartments and ice cream cones are taking a toll on Croatian tourism. These are the key highlights from the Macroeconomic Projections of the Croatian National Bank (HNB) presented on Friday by Governor Boris Vujčić. Regarding economic growth, Vujčić emphasized that the central bank expects GDP to grow by 3.7 percent this year, which is 0.1 percent higher than the September forecasts.

According to Vujčić’s assessment, the growth of real GDP should significantly exceed the growth of the Eurozone and continue to contribute to the alignment of our standard of living with the European one. Specifically, the Eurozone is expected to experience economic growth of 0.7 percent this year, while a strengthening of 0.8 percent was anticipated in the autumn. Furthermore, the Eurozone is expected to strengthen by 1.1 percent next year and by 1.4 percent in 2026. In both cases, this represents a decrease compared to the September forecasts.

Growth Generators

In Croatia, economic growth is expected to be 3.3 percent in 2025, while 2026 will bring economic growth of three percent, according to HNB. The forecasts for the next two years have been revised upwards by 0.2 and 0.3 percent, respectively. The faster economic growth than previously expected is a result of continued strong personal consumption—supported by a record low unemployment rate of 4.3 percent this year—followed by investments from EU funds and robust government spending. In terms of components, personal consumption growth is expected to be six percent this year, slowing to 4.9 percent next year, and to 3.5 percent in 2026.

Government consumption, after a high growth rate of seven percent last year, is expected to grow at a rate of 4.3 percent this year. In the next two years, it will further slow down to 3.2 and 2.4 percent, respectively. Investments are expected to grow by a strong 12 percent this year, while in the next two years, they will grow at significantly more modest rates of four and three percent. In addition to higher economic growth, we will also have a higher inflation rate than the rest of the Eurozone. HNB expects that after this year’s four percent, the inflation rate in 2025 will be 3.5 percent, and in 2026 it will fall to 2.5 percent. At the same time, inflation in the Eurozone is expected to be 2.1 percent next year and 1.9 percent the following year.

However, whether inflation will actually move in this manner is currently impossible to predict, as much depends on the intensity of the trade war announced by newly elected U.S. President Donald Trump. Inflation in Croatia has so far been primarily generated by services, especially those related to tourism, Vujčić pointed out. He noted that prices for tourist services in Croatia have jumped by 50 percent compared to 2019, while our competitor countries have seen much more modest increases, between 15 and 20 percent. This has already reflected in significantly slower growth in overnight stays in Croatia compared to other Mediterranean countries, and consequently, over the past two years, the growth of tourism revenue has visibly declined. The contribution of real tourist spending in the third quarter of this year was ‘very negative,’ Vujčić stated.

Cheaper Loans for Companies

– The price competitiveness of tourism-related activities has noticeably weakened, so the future contribution of tourism to the trade balance could be smaller – added the governor. This year, 50,000 new jobs have been created in Croatia. This pace cannot satisfy the domestic labor market, so according to October data, the number of foreign workers stood at 130,000. Of these, 10,000 came from EU member states. However, 33,000 workers, albeit part-time, came from the ranks of retirees, with the majority employed in the tertiary sector, from trade to scientific and technical activities.

At this week’s meeting of the European Central Bank, key interest rates were reduced by an additional 25 basis points, bringing the rate on bank deposits at the central bank to three percent. The governor emphasizes that the cheaper money is already noticeable in Croatia, primarily in newly approved loans to companies. – Despite more favorable financing conditions, loans to companies have only modestly increased with slight signs of recovery, while loans to households have continued to grow relatively strongly – Vujčić emphasized.