The German Economy is Accelerating Strongly. Why is Croatian Exports Asleep?

The economy of our leading trading partner is surprisingly accelerating, but it is questionable whether this will significantly reflect on domestic exporters and thus the entire economy. Amid a flood of news about convincing victories of the right-wing Alternative for Germany in two state elections and the removal of Volkswagen from the European stock index Eurostoxx, the news that forecasts for growth of the leading European economy have been significantly improved has gone relatively unnoticed.

According to Reuters, German economic institutes significantly improved their GDP growth forecasts on Tuesday. The Institute for Macroeconomic Policy (IMK) now expects German GDP to grow by 1.3 percent this year instead of the previous 0.6 percent. The main reason for the better forecasts is attributed to significantly higher exports than expected and the impact of the massive investment program of the current government of Chancellor Friedrich Merz. The forecast for 2027 has also been significantly raised – instead of 0.9 percent, economists at that institute now expect growth of 1.4 percent.

Higher Exports, Higher Investments

This forecast is based on last week’s news about the updated forecast from the IW economic institute. At the end of last week, that institution tripled its forecasts for German economic growth this year, from 0.4 percent – which IW expected in May – to the current 1.2 percent. Like IMK, IW also sees the reasons for the improved forecast in stronger exports and public consumption in the first half of the year.

Regarding exports, data from the German Federal Statistical Office Destatis showed that in the first half of the year, exports amounted to 818 billion euros, nearly four percent higher than a year earlier. For the next year, IW economists are somewhat more cautious; they expect GDP growth of approximately one percent, thanks to stronger personal consumption and investments.

While news columns have recently been filled with reports of the decline of the once-proud German automotive industry, the overall situation is not so bleak. As reported by the Wall Street Journal, confidence among German investors continues to improve. In September, the ZEW economic sentiment index recorded its fifth consecutive monthly increase. According to interpretations, investors draw optimism from the resilience of the German economy to the growing pressure of high energy prices due to the Middle Eastern conflict.

Cautious Optimism

The ZEW index – which tracks the expectations of 196 analysts and investors in German banks, insurance companies, and other firms – strengthened by half a percent in September, reaching a level of 34.7 points. However, this is a weaker result than the expectations of economists who predicted reaching a level of 40 points.

The ZEW survey indicates that investors remain cautiously optimistic about Germany’s economic recovery, which is still driven by fiscal spending, through the investment program of Chancellor Merz’s government and the acceleration of exports, said ZEW President Achim Wambach. It is worth noting that the Infrastructure and Climate Neutrality Fund, as the official name of this 500 billion euro package, is a combination of a very large credit-financed public investment cycle, along with tax incentives for private investments and the acceleration and reduction of bureaucracy.

Of the fund, 300 billion euros is intended for central government investments, and an additional 100 billion euros for regional projects. A large portion of the investments from the fund, which has a deadline until 2036, will go towards building new and renovating existing infrastructure. This year alone, 22 billion euros will be spent for this purpose.

The importance of the state of the largest European economy cannot be overstated, both at the European level and at our Croatian level. The latest data from the Croatian Bureau of Statistics (DZS), published in early September, showed that in the first half of the year, total domestic exports were worth 13.7 billion euros. Of that, goods worth 1.61 billion euros were exported to the German market, just 0.4 percent more than a year earlier. Notably, Slovenia was the leading export market in the first half of the year, with Croatian goods worth 1.62 billion euros.

Slowdown

If we also consider imports of 3.42 billion euros, Germany is currently Croatia’s leading trading partner with a commodity exchange worth just over five billion euros. Goran Šaravanja, chief economist of the Croatian Chamber of Economy (HGK), reminds us that exports to Germany increased by 12 percent year-on-year in 2025 and for the first time exceeded a value of three billion euros.

– In the first six months of this year, exports increased by only 0.4 percent compared to the same period last year, indicating a slowdown in export growth to the German market. According to forecasts of stronger growth of the German economy than previously expected, a continuation of growth in Croatian exports to Germany can be expected, although such a trend is not yet visible according to preliminary data – emphasizes Šaravanja.

From 2020 to 2025, the value of exports to Germany increased by 68 percent, corresponding to an average nominal annual growth of approximately 11 percent. However, the structure of that growth is very important: almost half of that acceleration occurred already during 2021 and 2022, after which 2023 and 2024 were practically periods of stagnation. Last year, there was again an acceleration in exports, while data for the first half of this year again indicate stagnation. Therefore, the German market remains one of the key markets for Croatian exporters, but its relative weight in total Croatian exports is decreasing this year.

If the forecasts for growth in personal consumption materialize, better results could be achieved by exporters of finished consumer goods, such as food products and beverages, believes Šaravanja. – For stronger overall growth in exports to Germany, it is also important to further involve Croatian companies in German supply chains – this economist believes.

Surge in Exports to Slovakia

Although it is our leading trading partner, the dynamics of trade with Germany is practically stagnant compared to other countries among the top five. It is particularly interesting that Slovenia, Germany, Italy, and Bosnia and Herzegovina are almost equal: each individually receives more than 10 percent of Croatian exports, and together they account for 45 percent of total exports. Slovenia narrowly took first place from Germany in the first half of the year.

Trade with Italy (+14.4 percent) and Hungary (+17.4 percent) is growing strongly, while the largest relative jump among leading partners was recorded by Slovakia (+57.9 percent). The growth with Slovakia almost entirely stems from the increase in Croatian exports, which surged by as much as 170 percent, reaching 781 million euros. The growth of trade with Italy primarily comes from a fifth larger import from the Adriatic neighbor. In the case of Bosnia and Herzegovina, statistics record an export increase of 13.5 percent, while imports fell by 5.2 percent. Among the ten largest trading partners, only the total trade with Serbia decreased, by 7.5 percent.

Goran Šaravanja points out that exports to Slovenia increased by 13.6 percent last year compared to the previous year, while in the first six months of this year, an increase of 8.8 percent was recorded compared to the same period last year. – When we talk about last year’s exports to Italy, it increased by 6.6 percent compared to 2024, and in the first six months, it grew by 4.7 percent compared to the same period last year. Judging by preliminary data, a slowdown in export growth can be expected, given that the growth rates recorded in the first six months of this year are somewhat lower than the annual growth rates achieved last year – assesses Šaravanja.

Overall, exports are following the trajectory of the entire domestic economy.