Companies cut investments by 8.4% because of higher interest rates

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.

“Although the average reduction in investment across all the companies surveyed is 8.4%, we also see that 80% of companies haven’t adjusted their investment plans at all,” says ifo researcher Lea Best. When looking at just the 20% of companies that have changed their investment plans, the decline in investment amounts to more than 41%.

There are differences depending on the sector. Construction companies in particular are foregoing investments because of higher interest rates. The average decline here was just under 10%. At 9.3%, the average decline in investment among the surveyed trade companies is also above the overall average. Manufacturing companies are investing 8.2% less on average. Among service providers, the decline is 7.4%.

There are also differences depending on company size: small companies (fewer than 50 employees) are investing significantly less (-9.9%) due to higher interest rates, while large companies (at least 250 employees) haven’t reduced their investments by as much (-5%). The decrease in investment will affect both growth opportunities and climate policy projects. “Targeted economic policy measures can help mitigate the long-term negative effects of higher interest rates,” says ifo Research Director Benjamin Born.