Foreign investment in Germany falls to 17-year low in 2025
Foreign investment in Germany slid to a 17-year low in 2025, as 548 projects and rising costs exposed a deeper competitiveness problem.
Foreign investors kept pulling back from Germany in 2025, leaving Europe’s largest economy with its weakest project tally in 17 years and a clear warning that high costs and rigid rules are dulling its appeal. EY counted 548 foreign investment projects, down 10% from the prior year, and said the decline marked the eighth straight year of falling inflows.
The numbers turn the debate over Germany’s economy into a referendum on competitiveness. EY said high taxes, labour costs and energy costs, along with a lack of reform to bureaucratic procedures, were pushing companies to hold back. Germany still ranked third in Europe as an investment destination, behind France and the United Kingdom, but that ranking now reflects caution rather than confidence. Investors are not abandoning Germany outright; they are committing less, later and more selectively.
Henrik Ahlers, EY Germany’s head, said poor sales and weak profits, combined with uncertain economic conditions, were forcing many companies to postpone or cancel projects. The wider European picture was also softer. EY said foreign direct investment into Europe fell 7% year on year in 2025, even though the region still attracted more than 5,000 projects. In 2024, Europe recorded 5,383 projects, down 5% from 2023, and investment remained 19% below the 2017 peak and 16% below pre-pandemic levels.
The headwinds are not just German. EY found 41% of respondents citing geopolitical tension and conflict as the top risk to Europe’s attractiveness over the next three years, up from 35% the previous year and 27% in 2024. Another 35% pointed to slow growth, rising public debt and inflationary pressure driven by higher energy costs. Even so, 60% of leaders still expected Europe’s attractiveness to improve over the next three years, a sign that the long-term investment case has not been destroyed, only weakened.
The sector mix is shifting as well. EY said defense-related foreign investment in Europe jumped 84% in 2025, including seven projects in Germany, as Russia’s war on Ukraine reshaped capital flows. The United States remained the largest source of foreign projects in Germany, overtaking China, a reminder that transatlantic capital still sees value in German assets even as enthusiasm fades.
Other measures show the same strain. Germany Trade & Invest said 1,564 foreign direct investment projects were implemented in Germany in 2025, down 9.3%, while expansion volume fell by nearly 50%. Achim Hartig said Germany remained a robust business location, but he also stressed the need to cut bureaucracy further. The German Chambers of Industry and Commerce were starker: in a March analysis of about 1,700 industrial firms, 40% planned investments abroad and two out of five wanted to reduce investment in Germany, with cost-cutting motives at their highest level since 2008. If Berlin cannot reverse that drift, the risk is not only fewer projects, but fewer jobs and a steady loss of economic gravity to faster-moving rivals across Europe.
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