Germany’s Foreign Investment Crisis: A Comedic Analysis
Greetings, dear readers! Grab your schnitzels and lederhosen because we’re diving into the fascinating world of foreign direct investment (FDI) in Germany—or lack thereof, to be more precise. Released this month by the Bundesbank, the report latest serves up a plate of dismal news that even a six-course meal at Oktoberfest couldn’t wash down. It appears that foreign investors are packing their bags and heading somewhere a tad warmer, like Spain or France—where the tapas are exquisite and the energy prices are, well, slightly less painful!
The Great German Retreat!
According to the Bundesbank (and let’s face it, they know a thing or two about money), Germany is seeing a significant decline in foreign investment. Now, some might ask, “What’s the deal?” Did they turn off the Wi-Fi at the Berlin startup incubators? Nope, it’s the energy prices that have made potential investors flee faster than a bad stand-up gig in a small town! The report noted a “structural break” back in 2022—an economic equivalent of a midlife crisis but with even fewer good choices.
With foreign direct investments plummeting from around 100 billion euros in 2021 and 2022 to just over 62 billion euros by mid-2024, Germany is looking more like that friend who keeps showing up to parties but seems to have forgotten how to talk. International investors have taken their equity capital and wandered off to la-la-land—otherwise known as France and Spain—where the investment climate is far more enticing!
Energy Prices: The Economy’s Party Pooper
Let’s break it down: Imagine Germany’s energy prices as a bouncer at the club. High energy costs are like a cover charge that makes people think twice about entering. As the Bundesbank analysts pointed out, since 2022, “industrial production in energy-intensive sectors” has crumbled faster than a stale pretzel! Picture this: a catastrophic 15% drop in production in 2022 alone, with further declines following suit. That’s not just a slight dip; that’s a belly flop into a cold pool!
And where are our friends from the UK in all this mess? The report sadly highlighted that, thanks to Brexit, British investments have noticeably shrunk. It’s a bit like showing up to a party that’s already begun without you—awkward and slightly embarrassing.
A Transatlantic Shift
Interestingly, as foreign investment dims in Germany, German companies are rediscovering a love affair with investments in the USA, particularly in energy-intensive sectors. Think of them as lovestruck teenagers who see shiny new prospects across the Atlantic. From a modest investment of 45 billion euros in 2020 to a staggering 70 billion euros by the end of 2022, it’s food for thought that maybe the grass is greener, and hey, they have better BBQ too!
Why Did the Investor Cross the Road?
So, why did those investors leave Germany? Well, they didn’t all just get bored with schnitzels and sauerkraut, no! The report suggests it’s mainly about energy prices. And let’s not forget that the competition for foreign investments in Europe is like a cutthroat reality show. Picture “Survivor: Investment Edition” where countries vie for capital instead of a million bucks, but with even shadier alliances.
As explained by the Bundesbank experts, “Germany and Europe will have to prove in the coming years that they remain internationally competitive and able to attract foreign capital.” So, maybe it’s time for a wardrobe change, a hairdo overhaul, and some serious charm to win those investors back!
Conclusion: The Moving Target of FDI
As we watch Germany’s foreign investment scene shift, filled with drama, ambition, and maybe a splash of despair, let’s not forget that the dance of international investment is more complex than it looks. With some clever moves and maybe a little less focus on energy price hikes, our dear Germany might find the balance again. Or at least grab a beer and reconsider its strategy!
In summary, if you see a few investors strolling around Munich, do say hi! Just be sure not to bother them during their “not investing” phase; it can be touchy! And remember, if things don’t pick up soon, there’s always karaoke night in Spain!
PressSplit
Foreign investors are increasingly withdrawing from Germany, an analysis shows. The reason may be energy prices.
Frankfurt – Foreign direct investment (FDI) offers companies the opportunity to open up new sales markets worldwide. These are long-term investments with which companies build ties in other economic areas and thus exert influence. These sometimes include company mergers, purchases and investments, but also loans to foreign subsidiaries or cash flows to set up companies abroad.
Conversely, direct investments by international companies are of course also of great importance for Germany as a business location. A new analysis by the Bundesbank now shows that things are currently not going well for foreign direct investments in this country.
Foreign direct investment in Germany is declining significantly – “structural break” in 2022
Headquarters of the Deutsche Bundesbank in Frankfurt am Main © IMAGO / Hannelore Förster
“On balance, additional equity capital from other euro area countries has barely been provided since the end of 2021,” the authors wrote in their report. Although inflows from third countries are still positive, “they have leveled off significantly compared to the years between the end of 2019 and the end of 2021.” At the same time, however, the Bundesbank analysts emphasized: “The available figures cannot indicate that international investors are completely turning away from Germany can be read.”
France and Spain attract significantly more foreign direct investors than Germany
According to the report, foreign investors invested a cumulative equity capital of 163 billion euros in Germany between 2020 and June 2024. The majority of these were investments from countries outside the euro area – they invested around 104 billion euros during this period. Companies from the USA invested the most, with the equivalent of around 56 billion euros. They are followed by investors from the Netherlands (around 35 billion euros) and the United Kingdom (around 17 billion euros).
While foreign companies invested around 100 billion euros in equity capital in Germany in 2022 and 2021, only a little over 62 billion euros in equity capital had flowed in by mid-2024. In their analysis, the Bundesbank authors particularly pointed out that direct investments from Great Britain have “noticeably lost significance” as a result of the Brexit decision.
As the Bundesbank experts also summarize in their analysis, with the decline in foreign investment, Germany is also losing ground in comparison with other European industrial nations. And there in particular towards France and Spain, they emphasize. Both countries have recently been significantly more successful in attracting foreign investors. According to the report, in 2024 Spain will receive cumulative foreign direct investment of more than eight percent of Spanish GDP. In France the proportion is almost six percent, in Germany it is less than four percent.
The rise in German energy prices from 2022 made foreign investors hesitant
The experts point out that the reasons for the reduced foreign direct investment in Germany since 2022 have not yet been “identified with certainty”. However, according to them, the high energy prices in this country could play a major role in this.
In any case, it is clear that the decline in foreign direct investment from 2022 coincides with the point in time from which industrial production in Germany also stagnated. As the Bundesbank points out in its analysis, industrial production in energy-intensive sectors of the economy actually collapsed due to the rise in energy prices. In 2022 alone, it fell by around 15 percent overall – a trend that continued until the end of 2023 and brought the entire level down by around 20 percent.
Due to high energy prices at home, German direct investments in the USA increased
However, the sharp rise in energy prices in Germany not only led to a decline in investment interest from abroad. They also resulted in German companies investing particularly heavily in energy-intensive economic sectors in the USA between the end of 2020 and the end of 2022: while investments in this area were around 45 billion euros in 2020, they rose to around 70 billion euros by the end of 2022.
According to the balance of payments data, German companies have recently been reluctant to make new direct investments in China. According to Bundesbank analysts, one factor for this is that Chinese economic growth has recently cooled down noticeably.
The Bundesbank experts summarize the intense international competition for foreign investments in the report: “Germany and Europe will have to prove in the coming years that they remain internationally competitive and able to attract foreign capital.” (fh)
