The investment gap

Abstract

The widespread perception at home and abroad is that Germany is Europe’s economic superstar: its economy is booming, and its economic and social policies have been impeccable. But there is a flip side to this success: Germany’s economy has fundamental weaknesses, and its economic policies have serious flaws. This chapter identifies the substantial and growing public and private investment gap in Germany as the main source of weakness and vulnerability in the German economy and discusses the measurement and origin of this investment gap, as well as its sectoral and regional distribution. In addition, the chapter explains why weak public investment is a key reason for low private investment, identifies those areas and sectors in which the investment gap is largest, and offers policy recommendations on how to close Germany’s investment gap and, thus, help solve the key economic weaknesses of the country.