Benefits & Risks of Investing in Germany

Updated on
September 20, 2022

The German economy has emerged as one of the most resilient in Europe in recent years, but factors outside Germany’s control can weigh on growth. A heavy reliance on exports means that when things take a turn for the worse elsewhere, Germany feels the knock-on effect. Its membership of the EU has undoubtedly helped to boost growth, but has also exposed the country to Europe’s wider economic problems.

Key reasons to invest in Germany

Economic growth: Germany is the economic powerhouse of the continent, with a nominal GDP of 3.573 trillion euros - the fourth largest in the world.Membership of the EU: Germany’s access to the single market has given it a big advantage on the global stage, boosting the country’s competitiveness both in and out of the Eurozone.Labour market & taxation: Average levels of education are high in Germany and industrial action is infrequent. Companies have access to a pool of highly skilled, motivated workers, while also benefitting from a unified tax code and less red tape than in other Western countries.

Key reasons to be wary of investing in Germany

Political risk: While Germany’s membership of the EU has largely been mutually beneficial, in the past it has also forced the country to spend large amounts of money rescuing Europe’s economically weaker nations from financial crisis. There is a distinct possibility that this could happen again in the future.Close ties with higher-risk nations: Germany is inextricably linked with every other country in the EU, and also with the sovereign debts other countries bring to the table. If one of these countries were to default on its debts, the resulting fall-out could spread across Europe, with serious consequences for the German economy.Ageing population: The average age of the German population is rising, which may create complications in terms of social welfare, while fertility rates remain relatively low.

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