Economic crisis: KfW: Germany is lagging behind globally when it comes to investments

Too little money for new machines, housing and research: According to the state development bank KfW, Germany is in danger of being left behind in international comparison when it comes to private and public investments.

“Private and public investments are the key to competitiveness and growth. At the same time, they are an indispensable prerequisite for achieving the climate goals that have been set,” said KfW boss Stefan Wintels. In view of weak investments, there is pressure to act.

Too little investment in important areas

Investments in machinery, equipment and vehicles in Germany in the third quarter of 2024, adjusted for prices, were around 9 percent below the value at the end of 2019, shows a study by KfW Research. In the USA, however, they exceeded the value shortly before the outbreak of the corona pandemic by 11.5 percent and in the EU by 1 percent.

Investment in residential construction in this country was recently around 13 percent below the value at the end of 2019. In the USA and the EU there was an increase of a good 1 percent – although increased interest rates slowed down construction in all countries.

Spending on intellectual property – research and development as well as software investments – is also growing too little in Germany. Although the private and public sectors invested a good 11 percent more here in the third quarter of 2024 than at the end of 2019, in the USA the value is 36 percent higher and in France it is almost 27 percent. “Germany is falling behind in an investment category that is particularly promising in times of an emerging AI revolution,” says KfW.

Debate about the debt brake

After all: public investments were recently 1.6 percent higher, adjusted for prices, than at the end of 2019, according to the study. In the USA, the state recently invested around 15 percent more than back then.

High energy and wage costs, a shortage of skilled workers and bureaucracy deterred companies from investing, the study said. The public investments are “directly politically controllable”.

There are always debates about government investments – also because of the controversial debt brake. According to Bundesbank President Joachim Nagel, Germany needs a completely new debt brake. “I think we shouldn’t just make slight changes,” he said at the World Economic Forum in Davos. “I think we need to change the whole concept.” According to Finance Minister Jörg Kukies, a reform of the debt brake alone will not solve Germany’s economic problems. “We have to concentrate on the growth potential,” said the SPD politician. There must be parallel reforms that promote growth.