This contribution was the Topic of the Week in the newsletter of week 11 in 2025.

Germany has gone through two years without economic growth, and 2025 is likely to bring a third. Only with increased investments can Germany return to a sustainable growth path—but urgent action is needed in this area. 

While the long-term average of the German Chamber of Commerce and Industry (IHK) economic surveys previously showed more companies planning to expand their investments than reduce them, this trend has been negative since 2023. According to data from February 2025, across all industries and regions, one-third of businesses plan to invest less in the future, and only a quarter plan to invest more. 

Declining investments are a clear warning signal for an economy, as this development indicates that key economic players do not believe such expenditures will pay off. Moreover, additional investments are essential to tackle challenges such as achieving climate neutrality, demographic changes, and the renovation and modernization of infrastructure. 

Companies account for the lion’s share of all investments in Germany, making improvements to conditions and appropriate incentives particularly important here. In concrete figures: in 2023, of the nearly 900 billion euros of total investments in Germany, 780 billion came from private investors. A significant amount—but despite rising investment needs, this was still about four percent less than before the COVID-19 pandemic.

It's not just about money

Key factors for the lack of investments in Germany are not primarily the absence of financial resources. Instead, obstacles include high costs for energy, taxes, or personnel, as well as growing bureaucracy and lengthy planning and approval processes. Now, more than ever, policies are needed that clearly focus on increasing private investments, innovation, and speed. It is also urgently time to prioritize digitalization in business, politics, and administration to avoid further straining companies' time and financial resources.

How big is the backlog?

Public investments have also been problematic for some time, particularly in areas like transportation infrastructure. The returns of private investors depend on the functionality of public infrastructures—from energy to road networks. Conversely, adequate financing of public expenditures is only possible when private engagement leads to robust economic growth, as this is the source of increased state revenues. 

It is therefore clear: companies rely on a functioning and efficient state. This applies to both the development and expansion of necessary networks and the reliability of framework conditions that should encourage private investments in a technology-neutral manner. 

This task is enormous: public investments have not increased as much in recent years as higher tax revenues would have allowed. Moreover, many investment budgets—including funds from the "Climate and Transformation Fund"—have not been fully utilized. The need for investments is obvious, and some areas even face an investment backlog. However, "more money" alone will not resolve the bottlenecks.

Limit credit financing of public expenditures

There is no fixed rule that the state must finance its investment expenditures primarily through loans. A problem is that the returns on public investments are often not precisely assignable, making it much more difficult to determine "yields" from such investments compared to private investments made by companies. 

Additionally, past experience shows that loans taken to finance public investments are often not used solely for the intended investments. Examples such as France and Italy demonstrate that, despite significantly increased debt levels, corresponding investment increases did not occur. In Germany, the debt brake allows for a substantial portion of state investments—0.35 percent of gross domestic product—to be financed through loans. 

There are also alternatives to creating room for public investments without additional debt: the state should focus more on prioritizing public budgets and concentrating mainly on investments. This is particularly relevant at the municipal level, where most public investments are implemented. However, it should also be examined which other expenditures arise there that stem from federal laws. Municipalities will only be able to focus on investment expenditures if they are provided with sufficient resources to do so.