Croatian GDP grew at a rate of 3.9 percent in the third quarter of last year compared to the same period in 2023. For the government, especially in an election season, even if it is a presidential election where it does not mean much, such a rate signifies success in economic policy and an opportunity for self-praise without any self-criticism. However, behind these bare numbers, statistics tell another story. According to the report from the State Bureau of Statistics, the gross domestic product (GDP) per capita in Croatia, expressed in purchasing power parity for 2023, reaches only 76 percent of the average of 27 EU member states, and the same level of that average was reached by actual individual consumption (SIP) per capita, keeping us among the European countries at the bottom of the rankings, alongside Slovakia and Estonia. And that is not the only problem: according to Eurostat’s report, Croatia had an annual inflation rate of four percent in 2024 and was among the countries with the highest rate in the eurozone, just below Belgium, where inflation was 4.8 percent, and Romania, where that rate was 5.4 percent. The average inflation rate in the eurozone was 2.2 percent, so it is not surprising that the ECB reduced interest rates. If it were up to us, that would not have happened yet.
Five Major Risks
It is not unusual for Croatia to ignore its own problems. The World Economic Forum (WEF) clearly identified five major risks for our country last year: labor shortages, economic downturn, inflation, real estate bubble burst, and extreme weather conditions. However, if we do not care about economic indicators that we package with decorative ribbons, why should we then deal with some risks when they can resolve themselves? For example, if they are not talked about, they can, say – disappear.
Igor Šlosar, president of the Center for Public Policy and Economic Analysis (CEA), would prioritize these risks differently, he says. Inflation would be in first place, labor shortages in second, the real estate bubble in third, economic stagnation after 2027 and the expiration of EU funds in fourth, and climate change in fifth. He warns that Croatia has been recording high GDP growth rates for several years, supported by two fundamental factors, EU funds and domestic consumption, while production is not growing or stagnating, with significant wage growth raising consumption and demand, thus increasing prices of everything. Real estate prices are rising for several reasons.
– The most important factors are high liquidity and modest interest rates on savings in banks, which are so capitalized that they simply do not seek new liquidity and do not attract it with interest rates, thus there is a large reserve of savings in the market and among citizens that is traditionally invested in real estate. In the coming period, we do not expect significant price corrections as demand pressure continues, and GDP growth projections for the next three years remain above three percent per year, which will cumulatively bring an increase of more than 15 percent compared to the base year, 2022. Croatia has never grown this fast before, which is, of course, positive. It has never had an A credit rating before, which is a result of public debt being less than 60 percent of GDP, which is constantly decreasing. The negative consequence of this rapid growth is the sharp rise in prices of everything, and as long as this engine is overheating, there will not be major corrections – emphasizes Šlosar.
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