GDP grows at softest pace in a year and a half in Q1

Croatian economy starts 2025 on a sour note: GDP growth moderated to 2.9% year on year in the first quarter from 3.9% in the fourth quarter of last year. On a seasonally adjusted quarter-on-quarter basis, economic growth also lost steam, cooling to 0.3% in Q1 compared to the previous quarter's 1.2% expansion. Both results marked the worst readings since Q3 2023.

Domestic demand drives the deceleration: Household spending growth slowed to 1.7% in the first quarter from the fourth quarter's 6.3% expansion, curbed by stronger price pressures and softer wage growth. Moreover, public spending growth was the slowest since Q4 2021 as it returned to more sustainable levels, expanding 5.8% (Q4 2024: +8.9% yoy). In addition, fixed investment growth cooled to 4.5% in Q1, compared to 9.5% logged in the prior quarter. On the external front, exports of goods and services growth accelerated to 6.0% year on year in the first quarter, which marked the best reading since Q1 2023 (Q4 2024: +4.7% yoy). Sturdier growth for goods exports outweighed a decline in exports of services, hinting that front-loading efforts ahead of greater U.S. tariffs played a role. Conversely, imports of goods and services growth moderated to 8.8% in Q1 (Q4 2024: +9.9% yoy).

GDP growth to ease this year: Our Consensus is for GDP growth to hover around Q1’s level throughout the remainder of 2025. Relative to 2024, domestic demand is set to lose some traction overall this year, curbed by a high base of comparison and softer wage growth. Meanwhile, exports are set to gain some traction amid a robust tourism sector. Nonetheless, the external outlook is highly contingent on the strength of EU demand, which in turn hinges on trade relations between the U.S. and the EU—heightened trade barriers between the two could dampen demand for Croatian goods and services via a slowdown in the EU.

Panelist insight: Alen Kovac, analyst at Erste Bank, commented: “We continue to see growth just shy of 3% mark, suggesting around 1pp moderation compared to 2024, yet still see it keeping solid, above [the] EU average […]. Domestic demand is seen remaining [the] growth backbone, with both private consumption and investments providing solid, yet softer, backing to the headline figure. […] External demand remains shaped by [a] still weak EU growth profile, while lacking clarity as [far as the] outlook goes, as trade war and global geopolitics keep adding to the uncertainty.”

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