Dr. Manuel Menkhoff

Declining balance depreciation, as is currently possible under the investment booster, should be introduced indefinitely in Germany. That is one of the results of a recent study by the ifo Institute, in which the economic effects of the planned corporate tax reforms (also known as “investment boosters”) in Germany were simulated. “Both the planned reduction in corporation tax and the introduction of declining balance depreciation will increase the capital stock and hence investment in the long term,” says Andreas Peichl, Director of the ifo Center for Macroeconomics and Surveys and co-author of the study.

Over the past 18 months, companies in Germany have reduced their planned investments by an average of 8.4% due to higher interest rates. This is a finding from the ifo Business Survey of December 2023, which has now been published in ifo Schnelldienst. “Companies are responding to higher interest rates by investing significantly less in energy efficiency and renewables. They are also reducing their research and development spending,” says ifo researcher Manuel Menkhoff.

German companies are passing on their higher purchase prices to their customers, but slowly and not in full. This is the finding of an ifo Institute survey, according to which companies have passed on just 34 percent of their purchase price increases over the past few months. They plan to raise this to 50 percent by April. “This is likely to lead to further inflationary pressure on consumer prices in the coming months,” says ifo researcher Manuel Menkhoff. The companies themselves report that weak demand, competitive pressure, and long-term contracts are holding them back from raising prices.