Germany reports record capital flight

Growing outflows could lead to the de-industrialization of the Eurozone’s economic engine, according to a study

Foreign companies held back on investments in Germany last year while billions flowed out of the country, the German Economic Institute (IW) reported on Wednesday.

According to IW calculations, around €125 billion ($132 billion) more direct investment flowed out of the EU’s largest economy in 2022 than was invested in the country from abroad, representing “the highest net outflows ever recorded in Germany.”

Nearly 70% of the money from German companies flowed into other European states, the report shows.
“The numbers are alarming: in the worst case, this is the beginning of de-industrialization,” the institute warned.

The IW said the negative trend started before the Covid-19 pandemic, with the situation worsening as a result of the EU’s energy crisis.

According to the report, a shortage of skilled workers has placed an enormous burden on German companies. In addition, investment programs such as the Inflation Reduction Act in the United States “made investments outside of Germany more attractive.” 

“Investment conditions in Germany have recently deteriorated once again due to high energy prices and the increasing shortage of skilled workers,” IW economist Christian Rusche said, pointing to high corporate taxes, rampant bureaucracy, and ailing infrastructure. “For Germany to once again become the top address for foreign investment in the future, the German government urgently needs to take countermeasures.”

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