February 25 (Reuters) – German investment in Central and Eastern Europe (CEE) continues to grow, with Poland, Hungary, and Serbia among the key destinations, while Albania remains a minor player, according to the KPMG report Perspectives of German Businesses in Central and Eastern Europe 2025.
The report highlights the region’s strategic importance for German companies due to competitive labor costs, proximity to the EU market, and rising domestic demand. However, challenges such as labor shortages, political instability, and slow institutional reforms remain barriers to investment.
Serbia, Croatia lead in the Western Balkans
Serbia and Croatia are among the most attractive Western Balkan countries for German investors. Serbia has recorded the highest increase in German investment over the past decade, while Croatia benefits from EU membership and economic stability.
Other regional markets, including Bosnia and Herzegovina, Montenegro, North Macedonia, and Kosovo, are described as emerging but facing greater institutional and economic hurdles. Albania, while included in the analysis, does not rank among the top investment destinations.
Growing investment in key sectors
Manufacturing, technology, and renewable energy are the leading sectors attracting German capital in CEE. As the region further integrates with the EU, foreign investment is expected to rise, particularly in countries that improve political stability and economic infrastructure.
The report notes that German investment in CEE reached a net stock of €134.7 billion in 2022, making the region a key destination for German capital. Poland is the top recipient, with €44.1 billion in direct investment, while Kosovo ranks lowest with €144 million. Serbia recorded the largest percentage increase in German investment between 2010 and 2022, growing 176%, compared to the regional average of 62%.
Trade volume with Germany surpasses US and China
Trade between Germany and CEE remains significant. Bilateral trade volume is expected to reach €519 billion in 2024, surpassing Germany’s combined trade with the United States and China (€504 billion).
In the Western Balkans, German investments in Serbia and Croatia focus on manufacturing, energy, and logistics. Investment levels in North Macedonia, Bosnia and Herzegovina, Montenegro, and Albania remain lower but are gradually increasing as supply chains diversify.
Serbia has been the top Western Balkan recipient of German investment over the past decade, driven by competitive labor costs, a strategic location, and investor-friendly policies. It ranks as the sixth-largest recipient of German investment in CEE, behind Poland, Hungary, Ukraine, and the Czech Republic, while Bosnia and Herzegovina ranks tenth.
Albania attracts limited German investment
Data from the Bank of Albania shows that the stock of German investments in Albania stands at €464 million, reflecting German capital inflows since the 1990s. Germany ranks as the ninth-largest investor in Albania, behind the Netherlands, Switzerland, Canada, Italy, Turkey, Bulgaria, Austria, and France.
Key sectors attracting German investment in CEE
The report identifies several priority sectors for German investment in the region:
- Industrial manufacturing and machinery – A key sector, particularly in Poland, the Czech Republic, Hungary, and Serbia.
- Automotive – German companies maintain factories and supply chains in Hungary, Slovakia, and Serbia.
- Renewable energy – Investments in wind and solar projects are expanding, aiming to reduce reliance on energy imports.
- Information technology and telecommunications – The sector is growing, especially in Poland, the Czech Republic, and Romania, due to access to skilled labor and lower costs.
- Transport and logistics – CEE’s strategic location makes it a hub for European supply chains, with Poland and Hungary leading in this sector.
- Agribusiness and food processing – Germany continues to invest in agricultural product processing and food exports.
The report concludes that while CEE remains a priority for German business expansion, long-term success will depend on governments providing a more stable political and economic environment for investors.
