Croatia’s Economic Growth Will Soon Depend on Other Factors

The Croatian economy has been recording above-average growth within European frameworks for several consecutive years, and forecasts indicate that this trend will continue, although the growth dynamics will be somewhat slowed. Mauro Giorgio Marrano, a senior economic analyst at the Italian bank UniCredit, will discuss what will determine the sustainability of economic growth in our country, as well as in the Central and Eastern European region, at Lider’s Big Plans Day conference, which will be held on September 24 in Zagreb. This speaker has excellent insight into economic issues in Central Europe, having previously been responsible for coordinating UniCredit’s team of analysts in CEE countries. Prior to that, he built his career as an economist in the Directorate-General for Economic and Financial Affairs (DG ECFIN) at the European Commission, as well as in the macroeconomic team of the British Treasury.

Has the economic performance of Central European countries met your expectations this year?

GDP growth for 2025 is likely to turn out lower in various countries than we had forecasted at the beginning of the year, which mainly reflects the impact of the introduction of U.S. trade tariffs in April and, in some countries, specific factors such as fiscal consolidation (Romania, Slovakia) and a weak investment environment (Hungary). The weaker-than-expected European automotive industry has also played its role, contributing to the weakness of industrial production in the CEE region’s economies. Nevertheless, growth is likely to range between two and three percent, except in Hungary, Romania, Slovakia, and Slovenia, where we expect it to be around one percent or less, due to the aforementioned country-specific factors. Domestic demand has remained the main driver of growth, while net exports have represented a drag, reflecting weak growth in the region’s main trading partners and the impact of trade tariffs. In 2026, we expect an improvement in economic growth in most countries, which will continue to be supported by domestic demand, consumption, and investments, as well as a recovery in exports.

Have Central European economies shown surprising resilience in the context of increased U.S. tariffs on European goods?

In general, the strength of domestic demand has contributed to mitigating the impact of tariffs, also thanks to tight labor markets. Additionally, in some countries, growth has been boosted by increased exports to the U.S. before the introduction of tariffs, which is a factor that will likely provide diminishing support. In the remainder of 2025, the effect of tariffs is likely to continue, but in 2026, fiscal incentives in Germany will support growth in major trading partners, alleviating the impact of tariffs.

To what extent will the need to increase defense budgets limit other public investments in countries on NATO’s eastern borders?

Detailed fiscal plans are not yet available, but the increase in defense spending is unlikely to limit other state investment expenditures because a) the EU is likely to provide additional funding for increased defense spending (the next Multiannual Financial Framework MFF, Security Action for Europe SAFE) and b) the Excessive Deficit Procedure will provide additional room for increasing the level of defense spending relative to GDP. Therefore, EU fiscal policy rules are unlikely to pose strict limitations on defense fiscal expenditures.

In recent years, Croatia has recorded significantly higher rates of economic growth than other countries in the region. Can these be sustained, and how successfully could it absorb EU funds from the new programming period?

Since the pandemic, Croatia has been one of the fastest-growing economies in the EU. This growth has been strongly supported by the recovery of personal consumption and tourism, growth in construction, and the utilization of large allocations of EU funding, with related spillovers into other sectors. One very encouraging fact is that employment has significantly increased to record levels, despite a declining population (with historically low unemployment levels). However, the sustainability of this growth will depend on increased productivity, which has recently begun to stagnate. EU funding will remain a strong growth driver in the coming years, but it will decrease, and as EU funding dries up, growth will begin to depend on internal factors and increased productivity.

How will demographic challenges affect the long-term growth potential of countries like Croatia, Romania, and Bulgaria?

In the region, weak demographic trends are likely to limit labor’s contribution to economic growth, making it difficult to maintain economic convergence at a similar pace as in the past two decades. Therefore, in addition to the role of foreign direct investment and EU funds, productivity growth is crucial for improving the prospects for potential growth in the region. Avoiding this risk requires significant investments in research and development and, relatedly, education.

In the past 16 years, Lider’s Big Plans Day has become a political-economic ‘must be’ event. So far, it has gathered around 5,700 participants and 300 speakers from among industry leaders, macroeconomic experts, high-ranking political officials, and influential public figures.

This status will be confirmed again this year with its program and selection of speakers, mainly leaders from various industries in Croatia, world macroeconomists, representatives of the public sector, and state institutions, from whom we will learn firsthand what awaits us and how to adapt to the unfavorable circumstances that the environment continuously imposes.

Do not miss the opportunity to network with the most successful entrepreneurs; register in time to participate in the 17th Big Plans Day, which will be held on September 24 at the Westin Hotel in Zagreb.