The gray economy is a complex phenomenon that has deep and wide consequences for society and the economy. Its development and scope may differ from country to country, depending on specific socioeconomic conditions, political situation and regulatory framework. Such a dynamic phenomenon is influenced by various factors, which are analyzed and explained in more detail in the rest of the paper. Furthermore, it is important to understand that the gray problem of the economy, which can be easily solved, requires a comprehensive approach. Governments must strengthen their tax systems, enforce regulations and ensure a fair business environment. During the global COVID-19 pandemic, the shadow economy has become an even more challenging problem facing the world. While states and economies tried to respond to the health crisis and limit the spread of the virus, the gray economy simultaneously showed its adaptability and resilience. Through this work, apart from the theoretical part, the development of the gray economy in the Republic of Croatia, at the level of the European Union, but also during the global pandemic of COVID-19 was analyzed.