Foreign Investments in Germany Plummet for a Third Straight Year: Here's Why
Investment from abroad in Germany experiences decline for the third year in a row
Get the scoop on why Germany's foreign investment game is experiencing a major slump!
In a grim turn of events, Germany saw a 2% dip in foreign investments last year, marking its third consecutive year of decline. According to Germany Trade & Invest (GTAI), a state-owned promotional agency, only 1,724 new settlements and expansions were recorded in 2024, compared to 1,759 in the previous year, 1,783 in 2022, and 1,806 in 2021.
"Germany's still a top choice for smooth sailing and solid investments," asserts GTAI CEO, Robert Hermann, yet the drop in investments has stirred up debates about the nation's dwindling competitiveness. Europe's foreign direct investments slid by 4.6% in 2024, and a whopping 5.8% in Western Europe, despite Germany's economy shrinking for the second year in a row—a trend defying the broader economic landscape.
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Despite the tepid foreign investment influx, companies have announced a total of €23.2 billion worth of investments. Although this falls short of the record-breaking years of 2023 (€34.8 billion) and 2022 (€25.3 billion), it supersedes the combined total for 2019-2021. "We're witnessing a serious of highly substantial investments," says Hermann, with as many as seven projects worth over 500 million euros reported. Close to 2% of all projects involve investments of €100 million or more.
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The US takes the lead as the biggest foreign investor, with 229 projects aimed at settlement or expansion coming from the States. Following close behind are Switzerland (202 projects), China (199), the UK (137), and the Netherlands (97). Investors announced plans to create up to 31,000 new jobs, marking the highest number since 2020. "We expect even more job announcements as they aren't always disclosed," Hermann adds. The majority of the projects focus on the sectors of digitalization (17%), energy & resources (16%), and electronics and automation (15%).
Diving Deeper: Factors Affecting Foreign Investment in Germany
- Economic and political instability are causing uncertainty for foreign investors[1][3], hindering Germany's growth and attracting investors elsewhere.
- High energy costs pose a significant challenge, with prices in Europe being notably higher compared to other regions like the U.S.[1][4].
- Geopolitical uncertainties are making investors wary of investing in Europe[1][4].
- Competition from the U.S., boasting attractive policies such as subsidies and tax breaks, has become a formidable competitor[2][4].
- Post-pandemic catch-up effects leading to a natural decline in new investments[3].
[1] https://www.dw.com/en/germany-risks-becoming-unattractive-destination-for-foreign-investment/a-59375916[2] https://www.pwc.com/us/en/services/tax/publications/inflation-reduction-act-IRA-briefs/individual-investment-tax-credits.html[3] https://www.aol.com/news/germany-foreign-investment-declines-third-year-in-a-row/62108375/[4] https://www.reuters.com/business/us-business/us-green-energy-firms-set-eyes-europe-after-ira-2023-01-21/
- The decline in foreign investments in Germany may be due to the country's employment policies not being as attractive as those in the United States, which offer subsidies and tax breaks, potentially affecting its competitiveness in the global business landscape.
- The ongoing debate about Germany's decreasing competitiveness could also be linked to the rising costs of finance and investing, as well as the uncertainties in technology and business sectors caused by geopolitical instability and high energy prices, driving investors to seek opportunities in other regions.
