Social State Reforms and Economic Challenges Hinder Investment in Germany in 2026

The German government is striving to enhance the country's attractiveness for investments, but significant barriers remain according to a recent survey by the Institute of the German Economy (IW). The survey indicates that 61% of companies regard the lack of social state reforms as the biggest obstacle to investing in Germany. Additionally, 40% of companies express concerns about the tariff policies implemented by U.S. President Donald Trump, fearing they could negatively impact investment decisions.

Investment activity is almost 25% lower than in 2019, highlighting a marked decline over the past seven years. Despite government priorities to boost investment through measures such as reducing bureaucracy, cutting energy costs, and advancing digitalization, only 58% of companies expect positive impacts from state investment plans, including a €500 billion debt package. However, 88% see bureaucracy reduction and 84% anticipate energy cost decreases as beneficial, while 73% value government digitalization initiatives. Infrastructure is another focus, with 52% seeing political initiatives in transportation as a driver for increased investments.

Economic headwinds are further illustrated by data from the Creditreform winter 2025/26 report, showing that although the average value of overdue invoices fell to its lowest in ten years (€1,838), corporate insolvencies reached their highest level in over a decade. This situation has caused creditors and suppliers to exercise caution, reducing overdue invoices reported and signaling ongoing financial pressures, especially within industry sectors. Experts warn of potential payment defaults ahead and advise companies to diversify client dependencies to mitigate risks.

Germany currently ranks 12th among the 45 OECD countries regarding industrial conditions, indicating room for improvement in attracting business investment. The combined findings underscore that while the government is taking steps toward fostering a better investment climate, social reform and economic stability remain crucial challenges.