HR: 1Q25 GDP growth landed at 2.9% y/y

As anticipated, GDP entered 2025 on a solid footing with headline figure expanding 2.9% y/y in 1Q, thus practically fully matching our expectations (EBCe 3% y/y). Seasonally adjusted data showed that the economy expanded by 0.3% q/q, translating to a 3.1% y/y increase. The detailed breakdown revealed continued support on the domestic demand side, albeit delivering moderation as private consumption shifted into somewhat lower gear (increasing 1.7% y/y), with such moderation also reflecting later Easter holidays, while investment activity brought 4.5% y/y growth. Public consumption also remained positive, increasing by 5.8% y/y. On the external trade side, exports grew 6% y/y, driven by double-digit increase in goods (11.6% y/y), while services dipped into mild negative area (-1.8% y/y, also likely reflecting shifting Easter holidays). Imports kept more vivid growth dynamics of 8.8% y/y, supported by strong performances on both goods and services side. As a result, net exports contribution remained a drag on the headline figure.

How do we see the remainder of 2025? We continue to see growth just shy of 3% mark, suggesting around 1pp moderation compared to 2024, yet still see it keeping solid, above EU average, pace. Domestic demand is seen remaining growth backbone, with both private consumption and investments providing solid, yet softer, backing to the headline figure. On the private consumption side, labour market fundamentals remain solid as wages should see growth in high single digit zone, coupled with solid employment gains. Along with that, consumer credit keeps strong pace (would be interesting to observe to which extent would tighter macroprudential regulation kicking in from 2H25 dampen the credit growth), while consumer sentiment remains overall supportive. Similar supportive tone is seen prevailing on the investments side, backed by EU funds flows, construction sector dynamics and declining interest rates amid ECB rate cuts. External demand remains shaped by still weak EU growth profile, while lacking clarity as outlook goes, as trade war and global geopolitics keep adding to the uncertainty. Direct exposure to US market is relatively limited, hence exposure is mostly related to indirect/second-round effects, with tourism potentially facing some headwinds. On that note, tourism is seen delivering only modest gains as overnights are concerned, with current YTD figures (Jan-Apr +4% y/y) supporting the narrative, while revenues in real terms are likely to remain negative also in 2025. Obviously, the risks are mostly tilted to the downside owing to global factors.