Real growth in Croatia might be faster in 2024 than the year before, and pick up more than previously anticipated due to somewhat better results at the turn of the year. Croatia's real GDP growth is projected to stand at 3.2% in 2024 and to edge down to an average of 2.7% towards the end of the projection horizon. The expected trends in 2024 are still largely influenced by a robust growth in domestic demand and especially by the rise in personal consumption, supported by favourable labour market trends and the growth in real income. Investment activity is expected to resume its upward path, albeit at a slower pace than in 2023, given that public investments might start moderating due to the completion of some programmes and projects financed from EU funds.

A relatively strong employment growth and a decline in unemployment is expected in the domestic labour market, with a further rise in nominal wages, though at a slower pace, followed by the gradual recovery in real wages. In the light of the continued upward phase of the economic cycle, employment is expected to grow further (by 1.8% in 2024), albeit at a slower pace towards the second part of the projection horizon. Unemployment is expected to continue declining, and the ILO unemployment rate might be 6% in 2024. Nominal and real gross wages in Croatia are expected to continue growing in 2024, albeit at a somewhat more subdued pace than last year, with a pronounced wage growth in the public sector, even though this will depend on private sector workers’ bargaining power. Wage growth is expected to continue decelerating over the remainder of the projection horizon.

After the very high levels seen in 2023, the surplus in the current and capital account of Croatia’s balance of payments is projected to be somewhat lower in 2024 and the years to come. The particularly high surplus in the current and capital account of 4% of GDP in 2023 was a result of falling energy prices and growing tourism revenues, paired with record-high inflows of EU funds ahead of the expiry of the period for the use of the funds allocated under the 2014-2020 financial envelope. As these favourable effects fade, the surplus in the current and capital account is expected to decrease to 3.8% of GDP in 2024 and further to 3.1% of GDP by the end of the projection horizon. This is mostly attributable to smaller envisaged inflows from the EU budget relative to the 2023 peak and the growth in the foreign trade deficit due to rising domestic demand. The overall balance might also be adversely affected by the ongoing increase in income account expenditures, mostly due to growing earnings of foreign workers in Croatia, which will increasingly affect the balance of payments. The opposite effect might be produced by the downturn in bank profits following exceptional results in 2023. Tourism revenues are set to grow steadily throughout the projection horizon, albeit at a slower pace given the supply-side restrictions. The persistently elevated risks to economic relations with foreign countries are mostly associated with the prices of energy and other raw materials, followed by geopolitical tensions and trade fragmentation, which may impede foreign trade and weaken investor sentiment. There are also risks associated with the use of EU funds, which may either exceed current projections or fall short of expectations due to the limited absorption capacity of domestic beneficiaries.

"A recession is beginning to appear on the Croatian real estate market, reflecting not only in Croatia but particularly in key markets such as Germany and Austria, where buying and selling activity in 2023 dramatically decreased by over 50 percent.

Given the constant rise in interest rates, there is no expectation of significant real estate price growth. A likely scenario for price development next year is a decrease in the number of buying and selling transactions. There will probably be fewer foreigners buying property in Croatia next year. This is an indication that prices will not increase anymore but have reached a hypothetical maximum at this moment."

The expected sustainable growth rate in Croatia is a good thing for someone who wants to invest in real estate in this country because it indicates that the property market is likely to remain stable and offer potential for long-term capital appreciation. Additionally, it suggests that the country's economy is healthy and continuing to grow, which can lead to increased demand for real estate.

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