Croatia’s A- credit rating affirmed by Fitch with stable outlook

Investing.com -- On Friday, March 14, 2025, Fitch Ratings affirmed Croatia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ’A-’ while maintaining a Stable Outlook. The decision reflects Croatia’s credible policy framework, strong economic growth, and commitment to fiscal discipline, bolstered by its membership in the European Union and the eurozone.

Croatia’s economic growth has been robust, outperforming regional peers. The country saw real GDP growth accelerate to 3.8% in 2024, up from 3.3% in 2023, driven by real wage growth, fiscal stimulus, and high inflows of EU funds. However, Fitch expects growth to moderate to 3.2% in 2025 due to slowing private consumption and investment growth, as well as increased external uncertainty. The agency forecasts that growth will further slow to about 2.5% in 2026.

Croatia has been a leading beneficiary of the EU Recovery and Resilience Facility (RRF) funds. The country has received €4.5 billion of its total allocation of €10 billion (equivalent to 11.7% of 2024 GDP) and is on track to absorb all available RRF funds by mid-2026.

The country’s fiscal deficit widened to 2.1% of GDP in 2024, up from 0.9% in 2023, due to higher costs from wage bill reform. Fitch projects the budget deficit to remain at 2.1% in 2025, below the government’s target of 2.3%. The agency expects the deficit to narrow to 1.7% in 2026.

Public debt as a percentage of GDP fell to 57.4% in 2024, nearly 30 percentage points below its peak in 2020. Fitch forecasts the debt-to-GDP ratio to decline further to 53.5% by 2029.

Inflation is expected to slow in 2025 due to base effects, lower real wage growth, and weak external demand. Fitch projects the Harmonised Index of Consumer Prices (HICP) inflation to average 3.4% in 2025 and 3% in 2026, down from 4% in 2024.

The current account deficit (CAD) is forecasted to widen to 1.1% of GDP in 2025 and 1.8% in 2026, up from an estimated 0.4% in 2024. The anticipated CADs will be comfortably financed by capital account flows and steady Foreign Direct Investment (FDI) inflows.

The Croatian banking sector remains stable, with solid capitalization, improving asset quality, and solid profitability. The sector saw robust lending activity to households in 2024.

Croatia’s ESG Relevance Score (RS) of ’5[+]’ for Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality, and Control of Corruption reflects the high weight that the World Bank Governance Indicators (WBGI) have in Fitch’s proprietary Sovereign Rating Model. The country ranks at the 67th percentile in the WBGI, indicating a track record of stable and peaceful political transitions, strong institutional capacity, established rule of law, and a moderate level of corruption.

The Country Ceiling for Croatia is ’AAA’, six notches above the LT FC IDR. Fitch views the risk of exchange and capital controls as minimal. The agency’s Country Ceiling Model produced a starting point uplift of +3 notches above the IDR, with a further +3 notches qualitative adjustment applied by the rating committee under the Long-Term Institutional Characteristics pillar. This reflects the country’s membership of the eurozone currency union and the associated reserve-currency status.

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