EU funds and strong demand continue to be the main driver of the Croatian economy

Croatia’s economic growth in 2026 will remain solid, primarily driven by strong domestic demand, favorable financial conditions, and continuous European investments, according to the latest Coface country and sector risk analysis.

Although forecasts for domestic growth are positive, analysts warn of a budget deficit that will continue to deepen due to strong growth in expenditures, particularly for salaries and pensions, while revenues will be less dynamic.

On the other hand, public debt will continue to decrease thanks to growth and optimal use of European Union funds. Regarding the foreign trade picture, a deterioration in the balance of payments is expected due to an increase in imports, despite the fact that the tourism sector continues to generate good revenues.

According to Coface’s assessments, Croatia is in the A3 category regarding country risk, while the business climate is rated very good with an A2 rating.

With a population of 3.9 million, Croatia achieves a GDP per capita of 24,025 US dollars.

‘Pros’ & ‘cons’

As the main advantages of the Croatian economy, Coface highlights the Mediterranean coast and the rich historical and natural heritage that form the basis of tourism. Strong support also comes from EU funds, with around ten billion euros allocated for the period until 2027, which corresponds to a level of 12 percent of GDP.

Croatia also stands out for its high-quality infrastructure and early diversification of energy sources, which began even before the war in Ukraine. Additional security is provided by membership in NATO, the Eurozone, and the Schengen area, along with a crime rate that is lower than the European average.

However, the list of shortcomings is somewhat longer. The economy is overly dependent on European tourism, and a limited industrial base causes a large trade deficit. Additionally, Croatia does not invest enough in research and development, and pressing issues include emigration, a declining population, and a chronic shortage of skilled labor.

Institutional weaknesses such as corruption, heavy and inefficient bureaucracy, and vulnerability to climate risks such as droughts, floods, and wildfires continue to burden the system.

GDP growth, inflation, and a three percent deficit

Key economic indicators show that after a strong jump in Croatian GDP of 7.3 percent in 2022, growth in 2023 and 2024 was 3.3 percent, and it continued to accelerate in 2025 to 3.5 percent. However, in 2026, Croatian GDP growth is expected to stabilize at three percent.

Inflation, which was a record 10.7 percent in 2022, is expected to fall to three percent in 2026, which is still one percentage point higher than the two percent inflation level advocated by the European Central Bank.

However, the budget balance is showing a negative trend: from a surplus of 0.4 percent in 2022, a deficit of three percent is expected in 2026. The balance of payments is also expected to slide into a deficit of 2.5 percent of GDP in 2026.

Nevertheless, public debt is expected to stabilize at 56 percent, similar to 2025.

In terms of trade exchange, Croatia exports the most to Germany (12 percent), to Italy, Bosnia and Herzegovina, and Slovenia at 11 percent each, and to Hungary at six percent.

The situation is similar with imports. Croatia imports the most goods from Germany (14 percent), Italy (13 percent), and Slovenia (12 percent). Hungary follows with six percent and Austria with five percent of imports.

Among the products dominating exports are oil and gas, machinery, as well as medical and pharmaceutical products, i.e., medicines.

2026 as a moment of truth

Reflecting on the global scene, Coface’s CEO Xavier Durand emphasizes that 2025 was full of uncertainty and volatility in the markets, primarily referring to U.S. tariffs and tensions between the U.S. and Europe over digital regulation. However, Durand believes that the fears were not as justified.

– Looking back, we can confidently say that the thriller of 2025 never turned into a disaster movie – said Durand.

That the global economy has shown stability despite this is evidenced by a global GDP growth of 2.8 percent, with advanced countries growing by 1.8 percent and emerging markets by four percent.

– From this perspective, 2026 could prove to be a moment of truth – said Durand.

For 2026, an adjustment to the ‘new normal’ of lower growth is expected, while inflation will slowly stabilize, but with caution due to geopolitical risks. China’s economy is slowing, and the U.S. will have to balance between protectionist tendencies and the need for global stability.

The main challenge is armament

The most important conclusion for Europe, which directly concerns Croatia, suggests that growing disagreements within the Union could lead to its disintegration. Although there are doubts about the Old Continent’s ability to maintain a leading role in globalization, Durand sees hope in individual countries, such as German budget reforms or the recovery of Mediterranean countries.

Brussels, he says, is on thin ice, as it struggles for free trade (especially with Latin America), while at the same time taking a firm stance against China.

– The extent of the revival of armament policy and, above all, its integration will be the main challenges in 2026. Ultimately, Europe must find an agile growth model that intelligently relies on its main competitors while remaining anchored in the values that support its prosperity – concludes Xavier Durand.