A recently released study by the Cologne Institute for the German Economy (IW), reported by the “Süddeutsche Zeitung”, suggests that over the last six years, German companies and private households have collectively contributed virtually nothing to economic growth. The study indicates that the average annual growth of the overall economy (between 2020 and 2025) of just 0.2% can be attributed solely to “the aggregated state contribution.” In practical terms, the report argues that without the significant investments made by the government in stimulus programs, defense, climate protection, and infrastructure since 2020, the Gross Domestic Product would not only have failed to increase but would likely have shrunk.
The weak performance of the private sector is primarily blamed on low corporate investment, an effect that consumption by private households was unable to fully offset. Expenditures have drastically fallen, particularly in residential and commercial construction, as well as in machinery and vehicles. These setbacks are attributed to business failures caused by the pandemic, supply chain issues, unstable financing conditions, trade disputes, and major geopolitical shocks such as the Russian invasion of Ukraine. The only areas showing a clear positive trend were expenses for research and development, as well as software and databases.
While the notion that the German economy is suffering from a massive reluctance by businesses to invest is not new, the IW expert Michael Grömling’s study highlights the severity of the problem. According to the research, in the second quarter of 2026, public investments stood at about 20 percent higher than the 2019 annual average when adjusted for prices. Conversely, private investments were more than ten percent below that average.
Grömling emphasized that this imbalance is not just a temporary cyclical issue, but rather “not normal for a market economy system in the long run.” The numbers also imply that machines and facilities are not being modernized sufficiently. Grömling stated that this lack of modernization “weakens economic production capabilities and the resulting wealth for years to come.” Therefore, he concluded that to secure continued prosperity, growth and stimulus impulses from private investment activity are urgently needed alongside public spending and consumption.
