Key Points:
- Foreign direct investment projects in Germany decreased by 10% in 2025, falling to just 548 projects.
- The decline marks the eighth consecutive year of shrinking investment, pushing Germany to its lowest level in 17 years.
- High taxes, rising labor costs, high energy costs, and a rigid bureaucracy continue to drive investors away.
- Germany remains the third most attractive European investment destination, trailing behind France and the United Kingdom.
Foreign direct investment into Germany fell for the eighth consecutive year in 2025. According to a new survey from professional services group EY, foreign companies backed only 548 investment projects in the country last year. This 10% decline from the previous year drags Germany’s investment appeal down to its lowest point in 17 years, reflecting deep structural issues within Europe’s largest economy.
Despite the steady drop, Germany still held onto its spot as the third most attractive country for foreign investment in Europe. However, it continues to lag far behind France and the United Kingdom, which took the top two spots. While its neighbors have managed to attract fresh capital through targeted reforms, Germany has struggled to convince international boardrooms that it remains a profitable place to build factories and offices.
International executives point to several persistent headaches when explaining their reluctance to fund German projects. High corporate taxes and heavy labor costs make doing business in Germany far more expensive than in competing markets. Many foreign firms find that high social security contributions and rising wage demands from local trade unions quickly eat into their projected profit margins.
Energy costs pose another major hurdle for manufacturing and industrial firms. Germany’s decision to shut down its nuclear power plants, combined with the loss of cheap natural gas, has left domestic businesses with some of the highest electricity bills in Europe. Energy-intensive industries, like chemical manufacturing and steel production, are actively shifting their planned expansions to countries with cheaper, more stable power grids, such as the United States.
Slow and rigid bureaucratic procedures also paralyze potential investments. International companies frequently complain about the sheer volume of paperwork and the painfully slow pace of government approvals in Germany. Getting a permit to build a new warehouse or install a wind turbine can take years. In contrast, competing nations offer much faster, digital-first administrative processes that appeal to fast-moving global businesses.
Henrik Ahlers, the head of EY Germany, offered a blunt assessment of the situation in the report. He noted that while France and the United Kingdom have experienced occasional upward trends in investment, the German economy has moved in only one direction for nearly a decade: downward. This prolonged decline suggests that the country’s economic problems are structural rather than temporary.
Poor sales and weak profit performance are forcing many international companies to rethink their operations in Germany entirely. Instead of expanding, corporate headquarters are asking their German subsidiaries to cut costs and delay new projects. In many cases, parent companies are canceling planned investments altogether, choosing to redirect that capital to regions with more favorable economic conditions and clearer policy directions.
A severe shortage of skilled labor further complicates these issues. Germany’s aging population means that more workers retire than enter the workforce each year. Foreign investors find it increasingly difficult to fill technical and engineering roles, even when they offer premium salaries. This talent crunch makes long-term projects risky, as companies cannot guarantee they will have the staff to run them.
As a result, many multinational corporations are moving their capital elsewhere. Many European and American firms are taking advantage of clean energy subsidies in the United States, which offer billions of dollars in tax credits. Others are choosing Eastern European nations, where land is cheaper, labor costs are lower, and governments cut through red tape much faster to secure foreign factories.
To reverse this 17-year low, business leaders argue that Germany must enact sweeping economic reforms. Economists suggest that the government needs to lower corporate tax rates closer to the European average of 21% and drastically simplify the tax code. Additionally, accelerating the digitalization of public administration could help cut processing times for commercial permits in half, making the country competitive once again.
