The World Bank in Croatia

Recent GDP growth rates have been strong, supporting Croatia’s accelerated income convergence with the EU. Over the last three years, average GDP growth reached 4.8%, consistently outpacing average growth in the EU. Consequently, in 2024 Croatia reached 76.9% of the average EU27 level of income (in PPP), up from 67.3% in 2019. In light of this strong growth, a reduction in public debt, and a solid track record in National Recovery and Resilience Plan (NRRP) implementation, all three leading global credit rating agencies increased Croatia’s credit rating in 2024 to above average. However, economic growth has become increasingly dependent on consumption and public investment, driven by rising wages, expansionary fiscal policy, and the inflow of EU funds.

To sustain growth and progress on shared prosperity and poverty reduction, Croatia faces several challenges. Enhancing productivity remains key, which could be achieved by driving private sector investment, diversifying the economy into higher value-added sectors, and creating a more dynamic business environment. Tackling demographic issues contributing to labor shortages needed for growth is another priority. Decoupling growth from environmental pressures like water use and air pollution and managing exposure to extreme weather risks is also needed. Strengthening institutions to support economic and social development and effectively address development challenges also plays a vital role.

Last Updated: May 06, 2025

The World Bank Group has been a partner to Croatia for over 30 years. Since its first loan in 1994 for emergency reconstruction of war-damaged infrastructure, the World Bank has supported more than 50 projects, totaling almost $5 billion and provided knowledge and technical assistance to help strengthen institutions and support policymaking through more than 330 reports and studies.

The World Bank has finalized the Croatia Systematic Country Diagnostic Update (SCD), a country engagement document, identifying key binding constraints and priority actions for Croatia to achieve inclusive, resilient, and sustainable growth. The SCD served as the analytical basis for the design and development of the next joint strategy between the World Bank Group and the Republic of Croatia—the Croatia Country Partnership Framework 2025-2030 (CPF)—which is to be launched on May 13, 2025.

The next CPF’s overall aim is to foster sustainable and inclusive economic growth in Croatia while addressing Croatia’s most acute development challenges. To do so, the CPF will focus on supporting the achievement of two main outcomes: increased investment and more productive jobs and increased environmental resilience. To achieve the first outcome, activities will focus on modernizing public service delivery, strengthening innovation and scaling up innovative investment, while better aligning skills and labor market needs. To achieve the second outcome, activities will focus on improving environmental and climate resilience and increasing the sustainability of the energy and transport sectors. Strengthening of institutions for efficiency and better service delivery will be embedded across the whole program.

The World Bank currently provides knowledge, technical assistance and financing in the areas of digital transformation and the green transition of the economy, justice service delivery, education, business environment, land administration, science and technology, post-earthquake reconstruction of key health and education facilities, social policy, deinstitutionalization, pension system modernization, long-term care, and public administration.

Last Updated: May 06, 2025

RECENT ECONOMIC DEVELOPMENTS

Croatia's economy experienced robust growth in 2024, with a real GDP growth rate of 3.9%, outpacing EU and eurozone rates. This growth was driven by strong domestic demand and EU funding. Exports of goods rebounded by 5.4% after a sharp decline in 2023, although services exports declined for the first time since 2020 due to stagnant tourism. The recovery in goods exports and strong domestic demand led to a 5.3% rise in imports, which negatively impacted net exports.

The labor market remained tight, with employment growth and a record high labor market participation rate. This, together with rising public salaries, has put further upward pressure on wages, after double-digit growth in 2023. Inflation decelerated but remained above the euro area average at 4%. The fiscal deficit widened to 2.4% of GDP due to increased public sector wages and pension indexation, despite strong revenue collection. Nevertheless, public debt remained firmly on a downward path and by the end of 2024 fell below 60% of GDP for the first time since 2010. Poverty is projected to have declined modestly from 1.9 to 1.6% between 2023 and 2025, although 19.3% of the population remains below 60% of the median income.

ECONOMIC OUTLOOK

After a strong performance in 2024, real growth is expected to moderate but remain robust at an average annual growth rate of around 3% between 2025-27. While domestic demand remains a key driver, private consumption and investment are expected to decelerate due to shifts in global trade policy and measures by the central bank aimed at reducing demand by households for new loans. The end of Recovery and Resilience Facility supported projects in 2026 will further decrease government investments. Trade policy shifts might slow external demand recovery, affecting exports of goods and services.

Inflation is likely to remain elevated in 2025 before converging towards the European Central Bank’s target of 2%. Expansionary fiscal policy is anticipated to be reversed, with the fiscal deficit expected to decline to 2% by 2027. Public debt is expected to reach 55% of GDP in 2027. Risks to the economic outlook seem negative, mainly due to global trade policy uncertainties. Poverty is projected to decline to 1.4% by 2027. Employment and wage growth are expected to reduce the at-risk-of-poverty rate, although persistent inflation might slow the overall pace of progress.

Last Updated: May 06, 2025