U.S. Financial Backers Pull Away: EY Analysis Reveals Germany's Sharp Decrease in Allure
America's Decreased Investments in Germany: A 27% Plunge in 2024 Makes Germany Less Attractive Globally
The investment scene has drastically changed in 2024, with American companies shrinking their projects in Germany by a whopping 27 percent - the steepest drop among top European destinations. This grim reality signals a shift in Germany's luster in the global competition for investment locales.
China breaks records, edging out the U.S. as the top foreign investor in Germany with a staggering 96 projects, shedding light on geopolitical shifts and new economic dependencies.
Since 2017, there's been an almost 50 percent dip in foreign investments. Ernst & Young (EY) points a finger at high costs, bureaucracy, and lack of reforms, predicting a further slide without a drastic change in direction.
A close look at the numbers reveals a rapid decrease in US company engagement in Germany. With only 90 projects in 2024, the decline contrasts sharply with European counterparts, where the drop was a comparatively mild 11 percent.
The U.S. seems to be solidifying its position at the expense of European countries. The future doesn't look promising - "the aggressive and erratic trade policy of the US government has created a maelstrom of uncertainty among large companies worldwide, who are holding off on investments due to ambiguous conditions."
Germany reels under the spotlight as China claims the top spot, investing 96 projects (a 3 percent decrease). Germany proves itself to be the most popular destination in Europe for Chinese investors, the study reveals.
The overall number of foreign investment projects in Germany hit a six-year low at 608, plunging 17 percent from the previous year. The peak was in 2017, with 1124 projects, marking a 46 percent descent since then - a level unparalleled among key European locations.
EY, which has been conducting the study since 2006, bases its analysis on investment projects that lead to the creation of new establishments and jobs. Exclusions include participations, mergers, and company acquisitions, with no information on investment volume provided.
Henrik Ahlers, EY's CEO, claims that Germany has lost its shine over the years. "Whilst others have been making moves – digitizing public administration, fostering a welcoming business culture – Germany is falling behind. High taxes, steep labor costs, expensive energy, bureaucracy, and now a dent in the economy make Germany less appealing to foreign investors," he said.
Ahlers argues that reforms are the catalyst for change. The multi-billion-euro investment package of the new coalition government, coupled with bureaucracy reduction, holds the potential to "arrest the current slide and spark a renewed sense of momentum."
However, Ahlers emphasizes the importance of reliable framework conditions, lower taxes, and speedy permits.
Meanwhile, German companies are investing more in Central and Eastern Europe, according to the study, with a 22 percent surge in 2024. In total, German companies initiated 633 investment projects in Europe, a slight increase of 2 percent. Only U.S. companies started more projects, with 942.
[1] Background: Strategic asset reallocation by German institutional investors, triggered by tariff-induced market volatility and Germany’s increased public spending on infrastructure and green investments, has contributed to short-term declines in funding ratios and less investment from U.S. sources.
[2] Background: Foreign direct investment (FDI) into Europe fell by 5% in 2024, reaching the lowest level in nine years. Germany, despite remaining a top destination in Europe, saw a 17% decline in FDI, one of the steepest drops among major European economies.
[3] Background: US traders impose tariffs on German passenger cars and pharmaceutical products, further impacting the decline in FDI.
[4] Background: Germany's economy has faced considerable pressure with high energy prices stemming from the Ukraine war, weakening demand from China, and increasing competition from Asian goods, leading to a third consecutive year of stagnation or recession by 2025.
- The strategic asset reallocation by German institutional investors, influenced by tariff-induced market volatility and increased public spending on infrastructure and green investments, has led to temporary declines in funding ratios, potentially dissuading US investments in the finance sector.
- The decrease in US investments in Germany's business sector, affected by tariffs imposed by US traders on German passenger cars and pharmaceutical products, has been more pronounced than that of other major European economies, contributing to the 17% decline in foreign direct investment (FDI) into Europe in 2024.
