Are the New Federal Government's Measures Having an Effect on Investment in Germany?

Latterly, private sector investment has been almost a quarter lower than in 2019. Germany currently ranks 12th in the German Economic Institute’s IW Location Index, a measure of countries’ relative ability to attract manufacturing investment, while in terms of costs, Germany occupies a worrying second-to-last place among 45 countries. It is therefore not surprising that encouraging public and private investment has been one of the new federal government’s highest priorities. Initial measures to stimulate private investment activity have already been introduced and the present article uses the autumn 2025 IW Survey of Economic Activity to assess how companies view the short-term (i.e. in 2026) and medium-term impact of these measures and other economic policy decisions. Overall, all of the measures analysed are expected to have increasing effects over time. A positive impact on corporate investment is expected primarily from a reduction in bureaucracy and a decrease in energy costs, while the third most optimistically rated measure is the acceleration and digitalisation of public administration processes. Lower corporate taxes and better depreciation conditions for private-sector investment are seen as more important in the medium term, while the effect of raising state sector investment is only expected to be moderate. On the negative side, companies regard the federal government's unwillingness to reform and stabilise the country’s social security systems as hobbling investment. They fear further increases particularly in pension and health insurance contributions, which in Germany are shared almost equally between employer and employee, and thus rising non-wage labour costs. Finally, the results of the survey suggest that, at least in the short and medium term, there will be no great differences in how the government’s measures impact the various sectors: major improvements in investment conditions and incentives benefit the entire economy.