The International Monetary Fund (IMF) said it has affirmed its projections for Croatia’s real economic growth for this year and next. Staff projects continued robust growth at 3.4% in 2024 and 2.9% in 2025, led by strengthening household real incomes and investment supported by EU funds.
Inflation is stickier, reflecting robust wage growth, and is expected to gradually return to about 2% in late 2025, the IMF said. Risks to the outlook are broadly balanced, according to the IMF. It believes that downside risks to growth include heightened regional conflicts, commodity price volatility, and a global or regional recession.
The Croatian general government budget deficit is expected to widen to 2.4% of the estimated gross domestic product this year and 1.8% next year, from 0.7% last year, according to the IMF projections.
While welcoming the resilience of the financial system, the IMF emphasized the need to closely monitor banks’ credit risks and the potential buildup of risks in the real estate sector. It concurred that the tight stance of capital-based macroprudential measures is appropriate and encouraged the authorities to continue to assess the need for introducing explicit borrower-based measures and stand ready to do so as warranted. They encouraged tackling labor shortages through coordinated policies to foster labor participation, facilitate labor mobility, and reduce skills mismatches and net emigration. Reviving productivity requires broad-based reforms to reduce barriers to entry, improve institutional quality, and expand financing options for innovation. The IMF encouraged the authorities to sustainably address housing affordability by boosting housing supply.