Investment in Germany by foreign firms drops to decade low, study finds

Investment in Germany by foreign firms was at its lowest level in a decade last year, an IW institute study showed on Thursday (Mar 14), as deindustrialisation fears loomed over Europe’s largest economy.

Foreign companies invested only about 22 billion euros (S$32.05 billion) in Germany in 2023, according to the study.

Industry contributed over a fifth of Germany’s economy, while services contributed 70 per cent, data from the economics ministry shows. The longer-term growth of direct investments could reflect changing business conditions in the country.

Overall net outflows – the difference between investments by German firms abroad and foreign ones in Germany – slowed last year, the institute said, to 94 billion euros. However, the two preceding years, 2022 and 2023, recorded higher outflows.

“The repeated high net outflows indicate that these are not exceptional phenomena, but rather the first symptoms of deindustrialisation,” the study said.

High labour and other costs have driven many German companies to relocate parts or all of their business to cheaper locations, such as emerging European economies.

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“Politics is making it anything but attractive for companies to invest in Germany,” said IW economist Christian Rusche.

This has partly been affected by the fact that government funding programmes – to help companies with high energy costs, taxes or inadequate infrastructure – have been stopped repeatedly and without warning.

“If the political framework conditions remain as they are, deindustrialisation could accelerate significantly,” he added.

Direct investments are declining worldwide, but not in the European Union, the IW said. In the first nine months of 2023, inflows, including from Germany, jumped 120 per cent.

Around 90 billion euros, or around two-thirds of all foreign investment by German companies, recently flowed into EU member states, primarily the Benelux countries and France.

In contrast, foreign firm hardly invested in Germany apart from “in smaller acquisitions or projects – an indication of the unfavourable location” in terms of global competition, IW said. REUTERS