The Croatian National Bank has published the latest macroeconomic projections indicating significant changes in the country's economic picture.

While the beginning of 2026 promised stability, the escalation of the conflict in the Middle East during March forced the central bank's analysts to prepare considerably more cautious forecasts. According to the worst-case scenario projected by the CNB, citizens could face inflation of as much as 7 percent, which would represent a strong blow to purchasing power and living standards, writes N1.

The conflict in the Middle East as the main driver of the crisis

The main reason for this revision of estimates lies in uncertainty in the global energy market. The central bank explains that hopes for a quick recovery have been replaced by fears of prolonged disruptions. If the war conflicts continue or spread, oil and gas prices could reach levels we have not seen in years. For the average person, this does not only mean more expensive fuel at gas stations, but a chain reaction of price increases for everything else, from package delivery to the price of bread at the bakery.

In its report, the CNB uses the term real GDP, which in simple terms represents the total value of all products and services that a country produces. When that number grows, the economy is healthy. However, the CNB now predicts a slowdown in that growth to 2.5 percent in the baseline scenario, while in the most unfavorable one that growth could fall to just 1.8 percent. This means that the economy will continue to develop, but much more slowly than previously planned.

What exactly does 7 percent inflation mean?

Many wonder what an inflation rate of 7 percent means in practice. Put simply, it means that the money you have in your wallet will be worth less. If last year you spent 100 euros on a certain basket of groceries, with this kind of inflation that same basket will cost you 107 euros. Although the percentage does not seem huge, over the course of a whole year and across all living expenses, it is a difference that is certainly felt in the household budget.

The central bank warns that the price of crude oil could jump to an incredible 150 dollars per barrel in the worst case. Since Croatia is a country that imports almost all of its oil and gas, such a jump directly spills over into production and transport costs. When a factory pays more for energy to produce yogurt, that yogurt ultimately has to be more expensive on the store shelf for the company to survive.

The labor market and the fate of your wages

It is interesting to observe what is happening to our incomes in these circumstances. The CNB states that nominal wages, that is, the amount you see on your employment contract, will probably continue to rise. Still, there is a catch that economists call a decline in real wages. This happens when prices in stores rise faster than your wage increases. The result is that despite possibly getting a raise, at the end of the month you can buy fewer things than a year ago.

It is also predicted that employment growth will slow down. After a period in which it was very easy to find a job, the market could cool somewhat. Nevertheless, due to the chronic labor shortage, experts do not expect high unemployment, but rather predict that the economy will continue to depend on the work of pensioners and foreign workers in order for the system to keep functioning.

Tourism as a double-edged sword

Croatian tourism, which is the backbone of our economy, is in a specific situation. On the one hand, unrest in Asia and distant destinations could prompt European tourists to seek safety on the Croatian coast, which is good news for renters and hospitality businesses. On the other hand, high energy prices make travel more expensive, and general uncertainty in the world often causes people to save and postpone annual holidays.

An additional problem is the weakening of price competitiveness. If Croatia becomes too expensive compared with other Mediterranean countries, we could see fewer guests than we are used to. This would create additional pressure on the state budget, which is largely filled precisely by tourist spending during the summer months.

The report of the Croatian National Bank is not a reason for panic, but it is for serious caution. While the baseline scenario still holds to moderate figures, the existence of a plan for 7 percent inflation clearly shows how fragile the situation on the world stage is. In the coming period, citizens will have to manage their finances more carefully, while the state will face a major challenge in how to mitigate the blow of rising prices on the most vulnerable segments of society.

The only bright spot in these projections is the hope that the situation will calm down by 2027, when the CNB predicts a return of inflation to a more acceptable 2.8 percent. Until then, the stability of the Croatian wallet will depend primarily on the price of oil on global exchanges and political stability far beyond our borders.