Investment backlog in Germany: Companies search in vain for trust!

Investment backlog in Germany: Companies search in vain for trust!

Germany's economy is heading towards an investment crisis, which is being exacerbated by an acute lack of trust in the framework conditions of the black-red coalition. The net investment ratio is at a historic low of just 0.3 percent, compared to 3 percent in 2019. Despite announcements by the Union and SPD for billions in spending on defense and infrastructure, companies are hesitant. “Consumers and entrepreneurs are on strike,” explains Arndt Kirchhoff, head of the North Rhine-Westphalia Business Association. This means that consumption and investments are currently limited to the bare essentials.

According to information from Blackout News Many companies are holding back their investments in the hope of more stable conditions. According to an LBBW study, 75 percent of the companies surveyed are prepared to invest, provided that both the economy and demand improve. But high energy prices (91 percent), excessive bureaucracy (94 percent) and massive regulation (89 percent) represent significant obstacles. Currently, only 22 percent plan to increase their investments, 60 percent maintain their spending levels and 15 percent intend to spend less in 2025.

Weaknesses and demands on politics

Andreas da Graça from LBBW Research identifies the weakness in the failing export model as central. Companies, especially medium-sized companies, prefer to invest abroad, where costs are lower and bureaucratic hurdles are lower. Daniel Terberger, managing partner of Katag, calls for an urgent need to strengthen domestic demand. According to the coalition agreement, steps such as a declining depreciation rate of 30 percent for equipment investments are planned until 2027 and the gradual reduction of corporate tax from 2028. But without confidence in the government's political stability, these measures will remain ineffective.

In addition to these national challenges, Europe faces, according to the European Investment Bank report, faced with global uncertainties. The pandemic and the Ukraine conflict have significantly impacted the continent's ability to invest, while at the same time digital and climate change require urgent investments. The high energy and raw material price pressure has further undermined confidence in the markets.

Public investments and necessary measures

The lack of investment in Europe is exceptional as the region lags behind international competitors such as the USA. The EU's backlog in productive investment has been 1.5 to 2 percent of EU GDP annually for at least ten years. The challenges in Ukraine have also intensified. Not only is there a risk of rising inflation, but also a growing risk of poverty for a further eleven million people in Europe.

To counteract this crisis, massive public and private investments are needed, particularly aimed at innovation. Policymakers must prevent fragmented financial markets and preserve the single market. It will depend on targeted risks and policy coordination at EU level to effectively implement investment-promoting policies. The EU's Recovery and Resilience Facility provides over 700 billion euros to support transformative investments.

The need remains clear: both Germany and Europe as a whole must create more stable framework conditions and targeted incentives in order to sustainably improve the investment climate and resolve the current investment backlog.