Germany faces productivity slowdown amid rising bureaucracy

Germany is facing a significant slowdown in labor productivity, which has averaged only 0.3 percent annual growth over the last six years, a sharp decline from the 2 percent growth seen in the 1980s and 1990s. Experts from the Institute of the German Economy (IW) Cologne suggest that productivity must increase fivefold to secure long-term prosperity.

Several factors contribute to this stagnation, including insufficient technological progress in digitalization, a shortage of skilled labor due to demographic shifts, and inadequate investment in infrastructure and new equipment. Additionally, rising bureaucracy is cited as a major burden on business efficiency and innovation.

In a comparative study of 21 OECD countries, Germany ranked near the bottom regarding investment friendliness. While industrial revenue rose by 4.7 percent to 556.4 billion euros in the second quarter of 2026, the number of employees in the sector fell by 2.7 percent, representing a loss of 144,000 jobs over a twelve-month period.