BERLIN (Reuters) – Investment by foreign companies in Germany hit a decade low in 2023, a study by research institute IW showed on Thursday, as fears of deindustrialization threaten Germany’s largest economy. Europe.
Foreign companies invested only around 22 billion euros in Germany in 2023, according to the study.
Industry represents more than a fifth of the German economy, while services represent 70%. Long-term growth in direct investment could reflect changing business conditions in the country.
Overall net outflows – the difference between investments by German companies abroad and those by foreign companies in Germany – slowed last year, the institute said, to 94 billion euros. However, the previous two years, 2022 and 2023, had seen larger capital outflows.
“Repeated high net outflows indicate that these are not exceptional phenomena, but rather early symptoms of deindustrialization,” the study says.
High labor and other costs in Germany have caused many companies to relocate part or all of their operations to cheaper locations in Europe’s emerging economies and elsewhere, or to consider to do.
“The policy makes it anything but attractive for companies to invest in Germany,” said Christian Rusche, an economist at the IW institute.
This is partly because government support programs – intended to help businesses deal with energy costs, taxes or inadequate infrastructure – have been repeatedly interrupted without warning.
“If political conditions remain as they are, deindustrialization could accelerate significantly,” he added.
According to the IW, direct investment is currently declining worldwide, but not in the European Union, where inflows, including from Germany, increased by 120% in the first nine months of 2023.
Around 90 billion euros, or around two-thirds of all foreign investments by German companies, have recently flowed into EU member states, mainly the Benelux countries and France.
On the other hand, foreign companies hardly invest within German borders. “And when they did invest, it was often in acquisitions or smaller projects – an indication of unfavorable geographic conditions in global competition,” the IW said.
(Reporting Rene Wagner, writing by Miranda Murray; Diana Mandiá, editing by Kate Entringer)
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