The strong growth in public spending in the election year, which was intended to strengthen the purchasing power of citizens, must not be repeated, says the Croatian Employers' Organisation (HUP).

If this trend continues in the coming years, there is a risk that Croatia will slip into an excessive deficit procedure, thereby cancelling out any progress in improving its credit rating, according to the HUP.

Despite strong growth in public spending, a robust labour market and continued support from European funds boosting economic growth this year, HUP stresses that the current pace of growth is unsustainable.

As outlined in its latest publication “The Weekly Focus” (Fokus Tjedna), the important temporary momentum in aggregate demand will fade as the “investment tide” fuelled by record inflows from European funds recedes from 2025. It also cites a two-fold increase in unit labour costs of 11.6% compared to the EU average of 6.6%, which is fuelling inflation, as well as the uncompetitive electricity prices and the tax wedge, which are having a negative impact on the competitiveness of Croatian companies