Foreign Investment in Germany: Up 50 Percent

Around 24 billion euros came from the other EU states. The IW experts attribute the increase, among other things, to the boosting of the economy through investments in defense and infrastructure. The announced expansion of the Bundeswehr and special funds for the armed forces also played a role, because international corporations were betting on long-term contracts.

Background: Special Funds and Economic Stimulus Programs

At the same time, the institute warns of a distorted perception. The absolute figures do not reflect the competitive position in international comparison, but rather primarily show the fluctuations of a few major projects. Individual takeovers and company relocations could strongly influence the total, the economists explained.

The view of German investments abroad is also more subdued: They fell slightly by 1.4 percent in the same period to approximately 71 billion euros. This means that inflows from abroad exceed German outflows abroad significantly for the first time in three years. The balance of direct investment remains comparatively low, however, with a plus of around three billion euros.

The IW Cologne nevertheless interprets the increase as a signal. It indicates that Germany is becoming attractive again as a production location and sales market for foreign corporations. This applies especially in sectors that benefit from European industrial policy and from major contracts in the security and defense area.

Political Context and Outlook

For the federal government, the increase comes at a politically sensitive time. Just last weekend, Chancellor Friedrich Merz had warned against a possible participation of the AfD in the government of Saxony-Anhalt and thereby pointed to the importance of economic stability for democracy. Investments are regarded in the debate as a central benchmark for locational quality.

The institute views the development with caution, however, with regard to the coming months. It remains open whether the momentum will continue or whether it is based primarily on a few major transactions. Should the economic situation in Germany continue to deteriorate, the inflow could decline again as early as the second half of the year, according to the IW.

Overall, the economic researchers assess the half-year figures as an indication of a trend reversal, but emphasize that sustainable locational policy requires reliable framework conditions, faster approval procedures, and a coherent industrial strategy. Only then can the growth be sustained.

For German industrial and energy companies, the development means additional orders and possible cooperation with international corporations in the short term. In the medium to long term, success depends, according to the IW's assessment, on whether the federal government implements the announced investment programs swiftly and keeps energy costs competitive.

The EU level also plays a role: With the European investment program and joint defense procurement, funds in the billions are earmarked for the coming years that could flow directly or indirectly to Germany. The IW sees this as an opportunity to further strengthen the location in competition with the USA and China.