Companies in Germany are barely making any additional net productive investments, even though the government has recently significantly increased its own spending. McKinsey identifies a collapse in investment in new capacity, noting that the rate has fallen from around two percent in 2019 to just 0.2 percent of GDP in 2024. The primary drivers are high production costs, expensive energy, lengthy administrative procedures, and regulatory hurdles. As a result, fewer new factories, facilities, and digital assets are being created within the country. Consequently, the risk is rising for the industrial sector, small and medium-sized enterprises, and the workforce that future value creation will shift to other countries.
Investment slump primarily affects new capacity
This weakness is not immediately apparent in every investment figure. However, much of the spending merely replaces old machinery, buildings, or facilities. What matters, therefore, is what is created in addition to these replacements.
Image: Shutterstock
It is precisely these productive net investments that are collapsing, according to McKinsey. The analysis does not attribute this to a lack of willingness among companies to invest; rather, the business case for many new projects in Germany compares unfavorably to that of competing locations.
Location costs influence corporate decisions
Consequently, the investment slump stems from more than just concerns about the economic cycle. McKinsey identifies structural cost disadvantages as the core issue. Depending on the industry, production costs in Germany are 35 to 50 percent higher than in the most competitive locations abroad.
The gap is even wider for energy-intensive products. Construction costs can be up to twice as high as in China. Furthermore, labor costs are in some cases five times higher, and energy costs three to four times higher, than in the most cost-effective regions of the US, China, or Europe.
Bureaucracy and energy prices hold back new projects
For companies, wages are not the only factor when it comes to new plants. Permits, grid connections, construction costs, and planning certainty also determine the return on investment. As a result, new facilities tend to be built where approval processes are faster and costs remain more predictable.
McKinsey also highlights bureaucracy as a significant drag on progress. Regulatory complexity ties up capital, personnel, and management time. While competitors build more quickly, the start of production in Germany is often delayed.
Government spending does not remedy private-sector weakness
The distinction between public and private investment is crucial. Destatis reported gross government investment of €147.5 billion for 2025—an increase of 12.3 percent compared to the previous year.
While such spending can bolster infrastructure, defense, and public buildings, it cannot substitute for additional corporate investment in new production capacity. It is precisely in this area that it will be decided whether Germany can retain its industrial value-added base.
Without new investment, the competitive edge erodes
In the spring, the ifo Institute reported a slight improvement in industrial investment plans; the indicator rose to +0.2 points in March, up from -3.1 points in December 2025. Nevertheless, the recovery remains fragile, as energy prices and uncertainty continue to weigh on the sector.
For Germany, this collapse in investment is becoming a test of its viability as a business location. Companies require lower project costs, faster approval processes, and reliable energy prices. Otherwise, Germany risks losing its standing as an industrial hub—not through a sudden collapse, but through a multitude of individual decisions against adding new capacity.
Author: Blackout News
Sources: Frankfurter Allgemeine (30.06.26) – IT Boltwise (30.06.26) – Statistisches Bundesamt (29.06.26) – McKinsey&Company (10.06.26)