High labour cost, regulations fuel investment freeze within Germany

Nearly one in five German companies has stopped investing in the country, according to a new business survey that points to what economists describe as Germany's longest period of investment weakness.

The findings come from a March 2026 survey conducted by the Cologne-based German Economic Institute (IW), as German media outlets report.

They questioned nearly 1,000 domestic companies across a range of industries, including both medium-sized businesses and large firms employing more than 500 people.

According to the survey, 19 percent of companies were not making any investments at the time they were questioned.

Businesses may suspend investment for a variety of reasons, said study co-author Michael Grömling, including difficulties obtaining financing, shortages of investment goods or simply a lack of business need.

However, Grömling argued the current downturn is far more severe than a typical cyclical slowdown.

"We are seeing a genuine investment crisis," he said, describing it as "the longest investment weakness in Germany."

The findings broadly align with data from Germany's Federal Statistical Office, which show investment sentiment has not been this weak since the COVID-19 pandemic. The report notes that geopolitical tensions in the Middle East may have influenced business sentiment but says the results also reflect longer-term structural challenges facing Germany as an investment destination.

Despite the weak outlook, the survey found that 67 percent of companies currently investing are doing so exclusively within Germany, while only 2 percent said their investments are focused mainly or entirely abroad.

The IW cautioned against interpreting those figures as evidence that Germany remains an especially attractive place to invest.

According to the institute, many small and medium-sized enterprises continue investing domestically because they have few practical alternatives. Businesses often need to modernise facilities or equipment simply to remain competitive, even if the broader investment climate is unfavourable.

Larger companies showed a markedly different pattern. Among major firms, 13 percent said they were investing primarily or exclusively outside Germany, reflecting their greater ability to shift capital to overseas markets. The report notes that many smaller German businesses operate almost entirely within the domestic market, limiting their options.

Labour costs and regulation biggest headaches

When asked about the biggest obstacles to investment in Germany, 77 percent of respondents cited high labour costs.

Regulation was identified as a barrier by 69 percent of companies, while 66 percent pointed to high taxes and 65 percent cited elevated energy costs.

Labour shortages were considered an obstacle by 43 percent of respondents, while 42 percent said climate-related decarbonisation policies were discouraging investment.

Businesses also highlighted several strengths of the German economy. Forty-five percent cited the country's large domestic market as an advantage, while 44 percent pointed to legal certainty and the rule of law.

Overall, however, the IW concluded that negative assessments of Germany's investment environment substantially outweighed positive ones, suggesting concerns over costs and competitiveness continue to weigh heavily on business confidence.

By Nazrin Sadigova