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[Croatian Central Bank Maintains Growth Forecast, Lowers Inflation Outlook] ⑴ The Central Bank of Croatia released its autumn macroeconomic forecast on Tuesday, maintaining its June forecast of approximately 2.4% economic growth for 2026, while raising its 2027 forecast by approximately 0.1 percentage points to approximately 2.4%. ⑵ The central bank stated that compared to the June forecast, external demand contributed slightly more to overall growth, while domestic demand contributed slightly less. ⑶ Croatia's economic growth slowed from approximately 3.8% in 2024 to approximately 3.4% last year, a significant deceleration compared to 2025, reflecting weakening domestic demand. This is partly due to the negative impact of the Iran war on economic activity, particularly rising energy prices and declining confidence, and also influenced by slower real income growth and tighter fiscal policy. ⑷ The central bank noted that after very weak growth in the first half of this year, economic activity is expected to rebound in the second half of 2026, with significant increases in retail sales and industrial production in July, a robust labor market driving further strong income growth, and anticipated faster use of EU funds before the end of the year. (5) The central bank added that stronger growth expectations in the second half of the year should have a positive carryover effect, therefore, although the quarterly growth profile is expected to be slightly weaker, the growth rate in 2027 is likely to be similar to that in 2026, and the forecast for economic growth in 2028 remains at around 2.2%. (6) Regarding inflation, the central bank lowered its forecasts for 2026 and 2027 compared to previous forecasts, reflecting that actual results were lower than expected. Inflation in 2026 is likely to be slightly higher than around 4.0%, before gradually declining. (7) Therefore, despite strong energy price increases, the average annual inflation rate, as measured by the harmonized consumer price index, is expected to slow from around 4.4% in 2025 to around 4.1% in 2026. (8) The central bank stated that factors contributing to easing inflationary pressures include slower domestic demand and wage growth, weak external demand for tourism services partly due to already high prices, and reduced import pressure, including import prices of food commodities in global and European markets. (9) Assuming energy prices gradually decline, fiscal policy remains tight, and domestic demand weakens, inflation is expected to continue to fall during the forecast period, potentially reaching around 2.8% by 2028. (10) Conversely, inflationary pressures related to unfavorable weather conditions may pose upside risks, primarily by pushing up food prices. (11) The latest central bank forecasts indicate that the harmonized CPI will be around 2.9% in 2027 and around 2.7% in 2028. Last year, the country's harmonized CPI rose from around 3.0% in 2024 to around 3.7%. (12) Overall, the growth outlook depends on the recovery of domestic demand and the arrival of EU funding, while the decline in inflation depends on energy prices and the fiscal stance. Future focus will be on the impact of weather on food prices and changes in external demand.