New HNB Forecasts: GDP Slows Down, but Wages Rise by 8.3 Percent

In its latest autumn macroeconomic forecasts, the Croatian National Bank (HNB) estimates that this year’s growth of the Croatian gross domestic product (GDP) will reach 2.4 percent, the same as in its projections published in June, while inflation is expected to slow to just over four percent, and gross wage growth could amount to 8.3 percent.

As they add, economic growth will be achieved with a slightly higher contribution from foreign demand and a somewhat smaller contribution from domestic demand to total growth than in the June projection.

– Compared to 2025, growth is visibly slowing down, reflecting weaker domestic demand, partly linked to the adverse effects of the war in Iran on economic activity, especially through rising energy prices and deteriorating confidence, as well as slower growth of real incomes and a more restrictive fiscal policy – they state on Tuesday from the central bank. Let us recall, in 2025, economic growth was 3.4 percent.

The HNB emphasizes that after very weak growth in the first six months of this year, an increase in activity is expected in the second half of 2026, in line with a significant strengthening of retail and industrial production in July, further strong income growth associated with a robust labor market, as well as the expected intensification of the use of EU funds by the end of the year.

The expected strengthening of growth in the second half of the year should result in a so-called positive transfer effect, so the growth rate in 2027 could be similar to that in 2026, despite expectations of a slightly weaker quarterly growth profile. In 2028, the continued slowdown in real income growth and slightly weaker use of EU funds could result in a mild slowdown in economic growth, they note.

Reduced Inflation Projections

Inflation, according to the latest projections from the HNB, could be slightly above four percent this year, after which a gradual decrease is expected. Let us recall, in the June forecast, they expected inflation of 4.9 percent.

Despite the strong rise in energy prices, the average annual inflation rate measured by the harmonized index of consumer prices (HICP) could slow to 4.1 percent, down from 4.4 percent recorded in 2025, the central bank states.

– The slowdown in inflationary pressures is influenced by the slowdown in domestic demand and wage growth, subdued growth in foreign demand for tourism services partly linked to the already achieved high price levels, as well as weaker import pressures, which include import prices of food raw materials on the global and European markets. Assuming a gradual decline in energy prices, continuously restrictive fiscal policies, and weakening domestic demand, further declines in inflation are expected in the projection period, and it could drop to 2.8 percent in 2028 – they emphasize from the HNB.

However, they also add that inflationary pressures related to adverse weather conditions could act in the opposite direction, which could primarily reflect an increase in food prices.

The HNB also expects that the labor market in Croatia will remain strong, but the growth of employment and wages could slow down. For the entire year of 2026, employment could increase by 0.8 percent, similar to the June projection, after a growth of 2.5 percent in 2025, and a gradual slowdown is also expected in the rest of the projection horizon.

Unemployment could continue to decrease, they say, but given the historically low level and unemployment rate below the estimated natural rate, the increase in employment will largely depend on strengthening participation and the import of foreign workers. The survey unemployment rate could thus only slightly decrease in the projection horizon, to 4.6 percent in 2028, from 4.9 percent in 2025.

Wage Growth This Year 8.3 Percent

The HNB expects a nominal gross wage growth of 8.3 percent for the entire year of 2026, after last year’s 10.8 percent. In 2027 and 2028, the growth of nominal and real wages could continue to slow down and further approach the increase in productivity of the economy, they add.

The HNB also states that projections of economic activity and inflation remain extremely uncertain, with prevailing risks that growth will be lower and inflation higher than expected.

– The main sources of uncertainty still arise from geopolitical tensions, primarily the war conflict in the Middle East, which causes disruptions in energy supply and increases their prices on the global market. Risks for higher inflation of food prices arise from possible extreme weather conditions that could further amplify the rise in food raw material prices that has been visible on the global market since the beginning of the year. On the other hand, growth could be higher, and inflation lower than projected in the case of an earlier calming of tensions in the Middle East. Growth will also largely depend on the ability of the public and private sectors to successfully utilize available resources from EU funds by the end of the period – they note from the bank.