In 2025, Germany once again records a decline in foreign investment. According to a recent EY analysis of Germany as a business location, foreign companies announced only 548 projects—representing a ten percent decrease. At the same time, this marks the eighth consecutive year of this negative trend. The figure has reached its lowest level since 2009. High costs, expensive energy, taxes, and a sluggish bureaucracy are cited as the primary causes. Consequently, the country faces the threat of fewer new manufacturing plants, fewer jobs, and a further erosion of its industrial base. (ey: 21.05.26)
Why Foreign Investors Are Steering Clear of Germany
This decline is impacting a location with a long-standing industrial tradition. Germany has long been regarded as reliable, well-connected, and technologically advanced. However, international companies today evaluate potential locations with greater scrutiny. Consequently, factors such as permitting times, energy costs, and tax burdens now carry more weight than Germany’s traditional strengths.
While Germany retains third place in a European comparison, France and the United Kingdom remain ahead. At the same time, this ranking masks the underlying weakness of the trend. Since peaking in 2017, the number of projects in Germany has more than halved. Consequently, the decline is significantly steeper than in other major European economies.
High Energy Prices Undermine the Industrial Base
The cost structure places a particular strain on energy-intensive sectors. Companies evaluate potential new locations based on long-term operating costs. As a result, countries with expensive electricity are losing their appeal more rapidly. Compounding this issue is the uncertainty surrounding future energy prices; yet for new manufacturing plants, planning certainty is paramount.
Bureaucracy, too, is slowing down decision-making. Many companies require expedited procedures for establishing factories, R&D centers, or logistics hubs. Germany, however, often presents lengthy administrative processes and complex jurisdictional structures. Meanwhile, other nations are actively promoting themselves with streamlined digital processes and clear tax incentives. Consequently, capital is shifting to other markets at an accelerated pace.
Fewer Projects Mean Fewer New Jobs
Declining investment affects more than just statistics. Every cancelled project can translate into lost orders for suppliers. It can also trigger a reduction in research spending and a decline in the creation of new jobs. For this reason, this trend weighs particularly heavily on industrial regions situated outside the major metropolitan centers.
German companies, too, are exercising greater caution. For 2025, they announced significantly fewer projects in other European countries. This sharp downturn, moreover, points to a broader weakness in investment activity. This reluctance, therefore, is not limited to foreign firms; rather, it reflects a sluggish economy, declining corporate profits, and uncertain future expectations.
The USA Gains Prominence, China Pulls Back
The balance of power among countries of origin is shifting. US companies increased the number of their projects in Germany, thereby rising to the forefront of foreign investors. China, by contrast, fell behind. At the same time, projects originating from the UK and Switzerland declined.
The defense sector occupies a special position. Due to the altered security landscape, a growing number of projects in this field are emerging across Europe. Germany, too, is benefiting from this trend, albeit to a limited extent. However, this growth does not offset the weakness observed in the rest of the industrial sector. Consequently, Germany as a business location requires faster administrative procedures, competitive energy prices, and reliable regulatory frameworks.