Germany remains one of Europe’s most important destinations for international investment, supported by its large domestic market, political stability, public safety and strong research and innovation base. Yet, in 2026, the country faces a growing challenge: maintaining its attractiveness to foreign investors while addressing structural weaknesses that are increasingly affecting its competitiveness.

The latest KPMG Business Destination Germany 2026 assessment highlights this shift. KPMG’s location index, which compares Germany with the other 26 EU member states across more than 20 factors, has steadily declined since the study series began. Germany’s score has fallen from +3.1 in 2017 to +2.6 in 2019, +2.4 in 2021 and +1.2 in 2023. In 2026, it reached just +0.2, leaving Germany only marginally above the EU average.

The findings suggest that Germany’s traditional strengths remain relevant but are increasingly being offset by concerns over the cost and complexity of doing business.

Public safety and political stability continue to be among Germany’s strongest advantages. According to the survey, 66 per cent of international-company CFOs rank Germany’s public safety among the five best in the EU, while 65 per cent say the same about political stability. These factors are particularly significant for long-term investors operating in an increasingly uncertain geopolitical environment.

Germany also retains important advantages in market size, research and innovation. More than half of respondents highlight the country’s purchasing power, research landscape and openness to technology. As a result, 60 per cent of international companies surveyed use Germany as their European headquarters, while 63 per cent manage activities outside Europe from the country. Germany also continues to perform relatively well in quality of life, although the share of respondents placing it among the EU’s five best countries on this measure has fallen from 74 per cent in 2023 to 51 per cent in 2026.

At the same time, investors are increasingly critical of the business environment. Bureaucracy stands out as a major concern: 70 per cent of respondents place Germany among the five weakest EU countries in terms of regulation, with 29 per cent ranking it last. Energy costs are another significant disadvantage. Germany was ranked the weakest EU location for competitively priced energy by 43 per cent of respondents, while a further 26 per cent placed it among the five weakest.

Infrastructure is also becoming a concern. Some 69 per cent of CFOs rank Germany’s digital infrastructure among the five weakest in Europe. Physical infrastructure has also lost ground, with only 29 per cent now placing Germany among the EU’s top five locations, compared with 77 per cent in 2017. Tax complexity and immigration policy have similarly received more critical assessments.

Despite these challenges, the outlook is not uniformly negative. International companies continue to see opportunities in Germany’s major economic transformation projects, including the energy transition, climate neutrality, digitalisation, demographic change and the expansion of defence capabilities. The government’s reform agenda is also influencing investment decisions: 19 per cent of companies surveyed identify it as one of their three most important reasons for investing in Germany over the next five years. Another 17 per cent point to the country’s infrastructure and defence package as an investment incentive. Overall, 48 per cent expect their economic situation in Germany to improve over the next five years.

Foreign direct investment policy, however, is becoming more cautious. Germany has tightened its investment-screening framework over recent years, particularly where transactions may affect national or European security interests. While the government maintains that Germany remains open to foreign investors, scrutiny has increased for investments involving Russia and China, state-owned entities and, more recently, certain investors from the Middle East and the United States.

The direction of German investment policy may become clearer later in 2026. The government has been reviewing the existing framework since 2023, with further reforms anticipated. The debate reflects a broader European trend: governments are seeking to balance openness to international capital with greater protection of critical infrastructure, technology, data and strategic industries.

For foreign investors, Germany therefore presents a mixed but still significant proposition in 2026. Its established industrial base, skilled workforce, research capabilities, market size and institutional stability remain powerful advantages. Yet, the country’s declining position in European location rankings shows that these strengths can no longer be taken for granted.

The central question for Germany is whether it can translate its reform agenda into tangible improvements in competitiveness. Faster administrative procedures, more affordable energy, better digital and physical infrastructure and a simpler regulatory environment could strengthen its position. At the same time, a more targeted and predictable investment-screening regime could help maintain security without discouraging legitimate international investment.

In 2026, Germany is therefore neither losing its appeal as an investment destination nor maintaining its position without difficulty. Instead, it is at a crossroads: its traditional strengths continue to attract global capital, while rising costs, bureaucracy and geopolitical considerations are forcing investors to look more closely at the risks and opportunities of doing business in the country.

References

KPMG. (2026, June). Business Destination Germany 2026: Between high pressure to reform and a strong foundation. Retrieved from KPMG: https://kpmg.com/de/en/insights/geopolitics/business-destination-germany-2026.html

Wienke, T.-M., Baer, L., & Wiehe, D. J. (2026, March 31). Foreign direct investment reviews 2026: Germany. Retrieved from White & Case – EMEA: https://www.whitecase.com/insight-our-thinking/foreign-direct-investment-reviews-2026-germany

Photo:
https://tse1.mm.bing.net/th/id/OIP.S0ehr-j0A6dq3Y1UeEAPwwHaE8?r=0&rs=1&pid=ImgDetMain&o=7&rm=3