The difference in inflation rate between Croatia and the Eurozone is the lowest since 2022.

The economy is slowing down, inflation is (again) accelerating – this is the essence of the recently published macroeconomic data that has sparked interest among the economic public. At the end of August, the Croatian Bureau of Statistics published data showing that the annual GDP growth in the second quarter of 2026 slowed to 1.7 percent, down from 2.2 percent in the first quarter. This is also the slowest growth since the end of 2020. Moreover, the structure of growth showed a weakening of personal consumption and investments with a stronger reliance on the public sector, construction, and a few export activities.

Shortly thereafter, data arrived indicating that the inflation rate, measured by the Harmonized Index of Consumer Prices (HICP), slightly accelerated to 3.7 percent in August, up from 3.6 percent in July. The main reason for the increase in the general price level was energy prices, which are rising amid a new escalation of the crisis around Iran and the Strait of Hormuz. For now, there are no indications that we are entering a significantly calmer macroeconomic year in 2027.

How it might look at least in broad strokes will become clearer after the presentation by the governor of the Croatian National Bank (HNB) Ante Žigman. The governor will present on the topic of Macroeconomic Forecasts for 2027 at the traditional Lider conference Day of Big Plans, which will be held September 23, 2026 at the Westin Hotel in Zagreb.

No sudden drop in investments

The HNB will, in accordance with previous practice, publish a new medium-term macroeconomic projection in September, taking into account the latest available data. According to the latest official projections from the central bank from June this year, economists at this institution expected that real GDP growth in the period 2027 – 2028 could continue to slow down but still remain relatively solid, with a gradual strengthening of the contribution from foreign demand and a simultaneous reduction in the contribution from domestic demand.

Žigman told Lider that, despite the fact that the use of funds from the Recovery and Resilience Mechanism, after its peak this year, is likely to significantly weaken in 2027, a sudden drop in total investments is not expected given that Croatia still has a relatively large amount of EU funds available from the multiannual financial perspective 2021 – 2027, which has yet to be used more intensively.

– At the same time, assuming that the conflict in the Middle East will be relatively short-lived, the growth of private investments could be supported by the expected recovery of external demand and a reduction in uncertainty. This could also lead to a gradual strengthening of our exports of goods and services. In such circumstances, the labor market could remain relatively robust, but the growth of personal consumption could continue to slow down, given expectations of continued slowing of real income growth and a more restrictive fiscal policy. However, it should be emphasized that movements due to the war in the Middle East remain very uncertain – the governor points out.

Expectations of strengthening the contribution of exports reflect the relative resilience of Croatian exports, as well as the continued increase in market shares of Croatian companies in foreign markets in the post-pandemic period, which was marked by pronounced geopolitical tensions and strong growth in labor costs. The governor emphasizes that it is particularly important that the data indicate that this growth is largely a result of increased competitiveness, rather than favorable sectoral or geographical structures of exports.

– There is also a noticeable strengthening of the export competitiveness of certain high value-added sectors, such as the chemical industry and the production of electrical equipment. However, the structure of commodity exports is still predominantly directed towards activities of lower and medium technological complexity – added Žigman.

Accompanying phenomenon of development

Regarding the other important issue troubling citizens, inflation, it has been at significantly higher levels in Croatia than the euro area average for several years. Governor Žigman reminds that inflation differentials in the monetary union are a common accompanying phenomenon of real convergence, i.e., the gradual approach of per capita income of countries with lower income levels to the average level of the entire union.

– The process of catching up with more developed economies is a structural adjustment process within the economic area and, to the extent that it is related to this process, should not be a cause for concern for economic policy makers. However, differences in inflation rates can arise from different economic structures that may lead to greater exposure to asymmetric shocks and differences in responses to common shocks, such as changes in energy prices or the nominal exchange rate of the euro. Although inflation differentials are a normal and desirable element of the overall process of catching up with more developed countries, excessive differentials are usually considered undesirable – claims Žigman.

The inflation differential between Croatia and the euro area average has been elevated since April 2022, with certain fluctuations, but has noticeably decreased in the last four months and was below its long-term average in August. Inflation in Croatia accelerated more than inflation at the euro area level in the first four months of this year, and in April, total inflation in Croatia was 2.4 percentage points higher than the euro area average, compared to a difference of 1.8 percentage points in December 2025.

According to Žigman, the increase in the inflation differential during that period primarily reflected a higher weight of energy in the domestic consumer basket, due to which the acceleration of energy price inflation contributed more to the acceleration of total inflation in Croatia than at the euro area average.

– However, in the next four months, the inflation differential significantly decreased, and according to the latest available data on the first estimate of inflation in August, it amounted to 0.4 percentage points, which is the lowest level since the beginning of 2022 and lower than the long-term pre-pandemic average. The reduction in the inflation differential during that period primarily reflected a stronger slowdown in food price inflation in Croatia. Additionally, during the mentioned period, inflation of other main components (services, energy, and industrial products) slowed down in Croatia, while at the euro area average level, inflation of those components accelerated (energy, industrial products) or remained unchanged (services) – emphasizes Žigman.

According to the current projections of the HNB and the European Central Bank from June, a smaller inflation differential is expected for the entire year of 2026 compared to the previous year, with further reductions in the next two years to a level close to the pre-pandemic long-term average.

Tighter conditions needed

In addition to monetary policy, there are other policies, such as fiscal, regulatory/structural policies, or wage policies, which are national and can address national specifics when it comes to curbing inflation. One such measure through tightened lending conditions was introduced by the HNB a year ago to limit the growth of bank lending to citizens. Recall that since July 1 of last year, there have been restrictions on consumer lending criteria, limits on the debt service-to-income ratio (DSTI), and the loan-to-value ratio (LTV).

Banks have been given a quota within which they may approve loans outside the prescribed limits, thus retaining space for justified deviations in individual cases. This space is now further narrowing: the draft of a new Decision on Consumer Lending Criteria, which is currently in public discussion, reduces the allowed deviations from DSTI and LTV limits, effective from October 1 of this year.

That tighter conditions were necessary is also evident from the recently published data on the movement of non-performing loans (NPL). Statistics from the end of June showed an improvement in portfolio quality and a decrease in NPLs in non-financial companies, while in the household segment, an increase in bad loans was recorded.

Governor Žigman emphasizes that the long-term reduction of non-performing loans in households stopped in 2024, and their amount has not shown a clear trend since then, with levels still significantly lower than a few years ago. – The stability of the aggregate, however, conceals the divergence of the two components. The amount of non-performing housing loans, after years of reduction, reached a bottom in early 2024 and has since almost continuously increased, from 183 million euros to 203 million euros in the middle of this year. The amount of non-performing non-housing loans simultaneously oscillates without a clear direction and at the end of the period is practically equal to that at the beginning of 2024. Behind this is the deterioration of the portfolio, which is first seen in new generations of loans that were approved under looser lending criteria: non-housing loans approved in 2025 are deteriorating significantly faster in the second year after disbursement than those approved in the period from 2022 to 2024 – explains Žigman.

All these challenges and strategies for the future will be discussed in more detail at Lider’s Day of Big Plans, an unmissable political-economic event that has hosted more than 5,700 participants and 300 speakers in the last 17 years.

This status will be confirmed again this year with its program and selection of speakers, mostly 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 successfully 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 18th Day of Big Plans, which will be held on September 23, 2026 at the Westin Hotel in Zagreb.