Fitch confirms Croatia’s A- rating with a stable outlook

Late on Friday evening the Fitch Ratings agency confirmed Croatia's Long-Term Foreign-Currency and Local-Currency Issuer Default Ratings at 'A-' with a stable outlook.

In its report, Fitch noted that Croatia’s confirmed ‘A-‘ rating with a stable outlook reflected a ‘credible policy framework’ that was ‘anchored by EU and Eurozone membership, strong economic growth and a record of fiscal discipline,’ emphasizing that this has supported a significant reduction in public debt/GDP in recent years. It added however, that in opposition to these strengths are a lower GDP per capita and ‘weaker institutional capacity and governance’ when compared to peer countries, and concluded that Croatia’s relatively small economy leaves the country vulnerable to external shocks. Fitch also noted that the ‘Stable Outlook’ reflects its expectations that public debt/GDP will stabilize over the medium term, despite forecasts of a widening of fiscal deficits. It further stated that ‘robust economic growth will continue to support income convergence,’ but did acknowledge that external price competitiveness has been weakening.

“Croatia's economy has grown exceptionally strongly in the post-pandemic period, driving accelerated income convergence with GDP per capita reaching 87% of the 'A' median and 59% of the EU average in 2025. Nonetheless, Croatia faces structural challenges that may impede further convergence, including weak productivity growth and fast-paced wage growth, which has pushed up unit labour costs. The economy remains highly reliant on tourism, which accounts for about 25% of output, including tourism-related activities, leaving growth exposed to external demand shocks and eroding price competitiveness,” the report stated.

Along with pointing out that ‘institutional strength’ is moderate (Croatia's World Bank Governance Indicator score is still short of the 'A' median by 10 points due to a weak score on corruption), the report also notes that Croatia’s growth, while still above peers, is slowing.

“We expect growth to slow to 2.4% in 2026 from 3.4% in 2025, still above the projected peer median and well above Fitch's Eurozone forecast of 0.9%. Private consumption will remain the main driver over the forecast horizon, albeit less strongly than previously as wage growth moderates and inflation rises. Investment should stay robust, supported by EU fund inflows despite tighter financing conditions. Net exports will remain a drag, reflecting subdued external demand and Croatia's deteriorating tourism price competitiveness, with the post-pandemic tourism growth impulse fading. We forecast growth to converge towards a potential of about 2.5% in 2027 and 2028,” Fitch noted.

“Croatia remains an EU frontrunner in Recovery and Resilient Facility absorption, having disbursed EUR7.3 billion of its EUR10 billion allocation, with grant absorption at 85% as of July 2026. EU funds will remain an important driver of growth until 2030. However, Croatia faces a significantly lower allocation of funds under the next 2028-2034 Multiannual Financial Framework, as the current budget cycle was boosted by Recovery and Resilient Facility transfers and EU Solidarity Fund assistance following the 2020/2021 earthquakes,” Fitch emphasized.

As for inflation, the Fitch report stated that the agency expects headline inflation to average 4.2% in 2026 as a result of higher energy prices. Fitch expects annual inflation to gradually drop to 3.6% in 2027.

“Croatia's inflation rates have been among the highest in the Eurozone and will remain above the European Central Bank's 2% target, as well as above our Eurozone inflation projections,” Fitch warned.

However, with GDP heavily reliant on tourism, inflation running rampant, and a high reliance on funds from Brussels, it is difficult to see how even the slightest external shock wouldn’t have a devastating impact on the Croatian economy. Add to this the fact that agriculture as a percentage of GDP has been on a consistent downward trend since the 2000’s and that the country is increasingly reliant on imported food goods, government’s claims that it has put national interests front and center appear to be suspect at best. To make matters worse the earlier sale of the INA oil and gas Company and the recent sale of the Petrokemija fertilizer Company, have placed in foreign hands Croatia’s refining capacity and its ability to produce fertilizers vital to agricultural production.

Source: HRT