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German public investment slows

Germany‘s real public investment increased about 4% per year on average during 2015-2020 and then grew 1% in 2021 in nominal terms, but decreased 3.7% in volume, due to rising construction costs and supply shortages.

Likewise, according to a report published by the European Commission, at 2.5%, the public investment ratio was marginally lower in 2021 than in 2020 (2.6%), but remained above its pre-pandemic level of 2.4. % in 2019.

Now, decarbonisation, digitisation, education, transport and infrastructure require investment, while implementation barriers affect the business environment and hold back private investment.

Estimates of cumulative public investment needs related to decarbonisation, digitisation, education, transport and infrastructure in Germany vary between 1.3 and 2.1% of GDP per year over the next decade and beyond.

Given the growing importance of the green and digital transitions both at national and European Union levels, these estimates could even be revised upwards.

Investment needs at all levels of government are high and are particularly pronounced at the local level to maintain the quality of municipal infrastructure after decades of negative net investment.

From the point of view of the European Union, the current deployment of electricity grids and very high capacity digital networks falls short of what is needed to achieve the planned green and digital transformation.

Public investment

Upgrading these networks and public infrastructure is also crucial to unlocking private investment in these areas. However, according to the same report, both public and private investment are held back by implementation barriers such as complex and lengthy planning and permitting procedures, and legal, financial and administrative restrictions.

Net public investment by government subsector

Germany's real public investment increased about 4% per year on average during 2015-2020 and then grew 1% in 2021 in nominal terms.

Germany’s large and persistent current account surplus reflects, among other things, high savings relative to investment.

While the surplus has declined from its 2015 peak of 8.6% of GDP, it remains high in 2021, at 7.4% of GDP, as a significant portion of consumption and investment failed to materialize amid the Covid-19 pandemic. 19.

The report indicates that this surplus is expected to decrease to 6.4% in 2022 due to the increase in commodity prices and the interruption of trade, and that it will recover slightly by 2023, remaining above the level indicated by the fundamentals.

Massive fiscal support helped shore up private sector balance sheets. In 2021, the corporate sector increased its net creditworthiness (excess savings) for the second consecutive year.

Additionally, net household lending remained above its pre-pandemic level.

Germany has increased public investment and expects further increases in the next decade. However, the resources allocated so far may not cover all the large investment needs and may have a relatively limited impact on the current account surplus.

 

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