Via Agenzia Nova
Germany’s self-imposed economic decline is no longer a warning—it is now visible in hard data, as foreign investment collapses to its lowest level since the aftermath of the global financial crisis.
According to a new analysis by EY, reported on by various German media outlets, foreign direct investment projects fell for the eighth consecutive year in 2025, dropping to just 548. The figure marks a 17-year low and underscores a steady erosion of confidence in Europe’s largest economy.
The numbers represent a 10 percent decline from the previous year. But more importantly, they reflect a structural downward trend that has now persisted for nearly a decade.
Henrik Ahlers, head of EY Germany, issued a stark warning. “Germany is falling behind, and other European locations are developing significantly better,” he said.
The roots of the problem, for many analysts, stretch back years and years. Economic policy under Angela Merkel is increasingly being scrutinized for failing to modernize Germany’s economic model.
During her tenure, critics argue, Germany relied too heavily on legacy strengths. Structural reforms were delayed, while bureaucratic expansion continued largely unchecked.
The so-called “traffic light” coalition that followed has also come under fire, with critics suggesting its left-liberal, anti-nuclear energy policies compounded existing weaknesses rather than addressing them.
Energy policy has been a particular point of contention. Rising energy costs have significantly increased the burden on German industry.
At the same time, regulatory complexity has continued to grow. Businesses frequently cite bureaucracy as one of the main obstacles to investment.
“In Germany, high taxes, high labor costs, expensive energy, and paralyzing bureaucracy are stifling investment,” Ahlers said.
Despite repeated calls for reform, progress has been limited. Analysts note that many of the same issues have been discussed for years without meaningful resolution.
Now, the current government under Friedrich Merz faces mounting criticism. Expectations of a decisive shift in economic policy have yet to materialize.
The comparison with other European economies is increasingly unfavorable. France and the United Kingdom continue to attract more investment projects.
France led with 852 projects, followed by the UK with 730. Germany, once the dominant force, now lags behind.
This shift, unfortunately for Germany, reflects more than short-term fluctuations. It points to a broader loss of competitiveness within Europe.
Investors, as they always do, are vote with their capital. Many are choosing jurisdictions with simpler tax systems, lower costs, and more predictable regulation.
Germany’s industrial base is also under pressure—and has been for quite some time now. Since 2019, more than 245,000 industrial jobs have been lost.
The decline is particularly concerning given Germany’s historical reliance on manufacturing. Industrial strength has long been the backbone of the economy.
Corporate bankruptcies are also rising sharply. The Halle Institute reports the highest levels since 2005.
In the first quarter alone, 4,573 corporate insolvencies were recorded. That exceeds levels seen during the 2009 financial crisis.
The trend accelerated in March. Bankruptcies were 71 percent above the average seen in previous years.
These developments, for most people looking at the situation, are without a doubt interconnected. Weak investment, high costs, and declining competitiveness are reinforcing each other.
Germany’s global reputation is also suffering. Ahlers warned that the country’s image as an “economic rock” has been significantly damaged.
“Germany’s inability to reform has now become known worldwide,” he said. The statement reflects growing frustration among international investors.
The broader European context highlights the contrast. Other countries have moved more aggressively to modernize their economies.
Digitalization, tax reform, and streamlined administration have been priorities elsewhere. Germany, critics say, has lagged behind on all three fronts.
The consequences are becoming increasingly clear. Investment is declining, growth is slowing, and confidence is weakening.
The data tells a stark story. Germany’s economic model is under strain—and the cost of inaction is becoming increasingly visible.
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