Republic of Croatia: 2025 Article IV Consultation-Press Release; and Staff Report

The 2025 Article IV Consultation discusses that the Croatian economy has performed well, driven by domestic demand, but imbalances are emerging which need to be curtailed. Procyclical fiscal policy driven by rising spending has exacerbated demand pressures, contributing to higher inflation and current account deficit. Credit growth has been rapid and housing prices have risen strongly. Against a weak external environment and elevated global uncertainty, staff projects growth to moderate to a still solid pace of around 3 percent in 2025–26, with inflation moving toward the external commercial borrowing’s target in late 2026 or early 2027. The economy has continued to grow rapidly, still among the highest in the euro area, but imbalances are emerging. The increases in fiscal deficit driven by spending during strong economic growth have exacerbated demand pressures, contributing to higher inflation and current account deficits. Investing in human capital and skills is critical to addressing subdued productivity and aging. Healthcare reform needs to reduce geographical inequality in healthcare access, promote prevention and healthy living, review the central role of hospitals in the system, and improve the use and distribution of pharmaceuticals.