Good public infrastructure is important for competitiveness and economic growth. In Germany, however, vulnerabilities have recently come to the fore: bridges and railway sections important for traffic are in need of repair, educational institutions need renovation, and the digitalisation of public administration is progressing only slowly. Surveys, studies or statistical indicators have their limitations, but they point to increased need for government investment. In response, central government has set up the Infrastructure and Climate Neutrality Fund which has extensive scope for borrowing.

Sufficient government funds are a prerequisite for ensuring efficient infrastructure. Where government funds are scarce, investment is at risk of being pushed out by other expenditure and falling by the wayside. But even when financial resources are available they are obviously not sufficient on their own; planned investment expenditure has only partially been spent in recent years, for example. Thus, the push to accelerate approvals and contract awards, including legal review procedures, is welcome. Using the funds in a targeted and economical manner is also key. When it comes to investment needs at local government level, state governments have a role to play alongside local governments themselves. They should, where necessary, provide sufficient scope for investment via budgetary oversight or additional grants. 

The new off-budget special fund offers a good opportunity to modernise government infrastructure. Instead, central, state and local governments are currently planning to use a large portion of the funds to close funding gaps in non-investment projects. In the face of rising demographic pressures and large funding gaps going forward, pressure to crowd out investment could increase. 

Both the new special fund and debt brake reform could be used to better secure a strengthening of infrastructure within these government budgets. In the case of the special fund, borrowing could be more closely tied to increasing fixed asset formation related to infrastructure. This makes it more likely that these investments will actually go well beyond depreciation, amortisation and write-downs and that the quality of the infrastructure will increase markedly. In addition, the financing of additional investment in infrastructure could be better secured even after the fund expires. To this end, the Bundesbank is proposing a permanent, earmarked scope for borrowing as part of a debt brake reform, pragmatically linked to the fund. This proposal makes it easier to keep the government investment ratio at an elevated level in the longer term if necessary. 

German infrastructure needs improvement in some areas. The government’s planned investment offensive is therefore understandable. For a long time, government infrastructure was seen as one of Germany’s important advantages as a business location and as a counterweight to a fairly high tax burden. However, infrastructure vulnerabilities have increasingly taken centre stage. The prospect of additional funding for investment and measures to speed up implementation processes provides an opportunity to address these vulnerabilities quickly.

This report first briefly describes the structure and development of government investment in Germany. It then looks at how scope for additional borrowing could be directed more specifically towards additional infrastructure-related investment in the future. The Infrastructure and Climate Neutrality Fund provides some short-term approaches for this purpose. Following these, an arrangement forming part of a fundamental reform of the debt brake would be advisable. The report builds on the Bundesbank’s suggestions from last year and explains them in more detail in connection with the above. The annex to this report explains some specific aspects of government investment in more detail in order to ensure greater transparency in an at times complicated and multifaceted discussion. It contains discussions of various investment concepts and available statistics on government investment in further detail (in-depth analysis 1). This is followed by explanations of developments in government investment and government capital stock in Germany and an international comparison (in-depth analyses 2 and 3) and then by studies on investment needs (in-depth analysis 4). 

The government generates wealth by means of investment expenditure. Fixed asset formation is a key driver of government infrastructure. Construction investment is used by the government to build or modernise roads and buildings, for example, while investment in machinery and equipment is used to purchase motor vehicles, military goods or IT infrastructure. These non-financial assets can be used for several years. 1 Wear and tear is taken into account by means of depreciation, which represents the loss in value of non-financial assets over time. 

Investment as recorded in the national accounts comes closest to this economic perspective (for various statistical definitions, see in-depth analysis 1). This report therefore uses those figures as a key tool to illustrate developments in government investment. The national accounts investment largely reflects expenditure on government infrastructure. However, it also includes, for example, investment in military equipment or in research activities that create intellectual property. The concept of investment used in government budgets (government finance statistics) differs from the above and is more oriented towards payment flows. Investment-oriented fiscal rules are, for practical reasons, mostly based on figures as they appear in government finance statistics – this includes the recommendations in this report.

After the post-reunification peak, government investment (national accounts) as a percentage of GDP in Germany was, for a long time, low (see in-depth analysis 2 for national developments and in-depth analysis 3 for international developments). At the beginning of the 1990s, the government’s (gross) investment ratio was slightly above 3 %. This higher investment was used, in particular, to modernise the infrastructure in the new federal states. This was followed by around 20 years of a lower investment ratio (2½ % on average). The decline in the ratio was largely attributable to local governments. Tight fiscal positions are likely to have contributed here as well as spin-offs to the private sector (especially in municipal waste and wastewater management and water collection, treatment and supply). In recent years, the general government investment ratio has risen again to an average of 3 %, reaching 3.2 % in 2025 according to preliminary figures. 2  

Low net investment and the ageing of the capital stock indicate a need for modernisation. Net investment shows the extent to which annual (gross) investment exceeds depreciation. On average, it has been only slightly positive over the past few decades and has even been negative in some years. Data on the government capital stock indicate that it has been ageing continuously – the “degree of modernity” has gone down. The net capital stock (which takes into account steady depreciation) has developed less slowly than the gross capital stock (which includes all investments at their replacement values).

Compared with the euro area, the government investment ratio in Germany was rather low for some time. In recent years, however, the ratios have converged. Note, though, that different distributions of tasks between government and the private sector restrict the international comparability of government investment ratios, among other factors. For example, government investment in Germany in the health and environmental sectors is relatively low, as the private sector has a greater share of these areas. Other countries appear to also shift more investment to the private sector through methods such as public-private partnerships. 

The bulk of government investment in Germany was in the areas of transport, general public services (including research and development) and education. Major examples of local government investment include local transport routes and school and administrative buildings, followed by recreational and cultural facilities. State government investment is also concentrated on transport routes (state roads), education and research (especially universities). The area of public order and safety (police and justice) follows at a significant distance. Central government invested mainly in the federal rail and road network. Defence investment had a fairly low share, amounting to around 0.2 % of GDP over the past decade. Construction is the dominant type of investment, accounting for around 60 % of the total. The government capital stock consists largely of building construction and civil engineering works, partly because these are typically usable for longer than the other types of investment.

In future, proper assessment of infrastructure needs and areas that have fallen behind would be aided by quality indicators that were meaningful and easy to compare. In this respect, it would be preferable if all central, state and local governments would provide such indicators for their most important areas of responsibility. Nationwide, detailed and up-to-date cost statistics (e.g. on road construction) would also be helpful. They could improve transparency and cost efficiency. 

Various international indicators on infrastructure competitiveness, national studies on investment needs or surveys on location strengths and weaknesses are currently available (in-depth analysis 4). Owing to methodological differences (such as differing definitions), these do not show directly comparable annual investment needs. However, the need to catch up in the areas of transport infrastructure, educational institutions and the digitalisation of public administration is well documented. 3  

Extensive new scope for borrowing for defence and infrastructure was created last year, and a significant increase in the investment ratio is therefore expected for the coming years. 4 This mainly concerns the military sector, which is to be expanded significantly in line with NATO requirements. As a result, government investment in machinery and equipment, in particular, will rise sharply. However, investment expenditure in the civilian sector is also expected to grow in connection with the Infrastructure and Climate Neutrality Fund. According to the Bundesbank’s current forecast, general government gross fixed capital formation will rise from just over 3 % of GDP in 2024 to around 4½ % of GDP in 2028. Such large increases make the exact level of future investment growth difficult to estimate with any degree of certainty, for military and civilian investment alike.

However, additional funding alone is not sufficient to significantly and swiftly improve infrastructure. Swift selection and implementation of appropriate projects is also essential. The agreements concluded by central and state governments alongside the Federal Government’s December 2025 plans could contribute to accelerated implementation. 5 At the same time, it is important to keep an eye on cost efficiency. When aiming for a strong ramp-up of investment expenditure, it is important to ensure it is not “swallowed up” by price increases. It also seems sensible to coordinate investment effectively between the different layers of government, for example in digitalisation projects involving multiple federal states. State governments should also provide administrative support to their local governments for investment projects where needed.

Despite the need to catch up on infrastructure, there is a risk that such investments will be crowded out in government budgets. To counter this, the Bundesbank recommends that, in future, parts of the scope for borrowing be specifically linked to investment expenditure. These proposals relate to the Infrastructure and Climate Neutrality Fund and follow-up provisions as part of a fundamental reform of the debt brake. The aim here is to provide a pragmatic and manageable plan that limits the problems associated with such investment-oriented fiscal rules as far as possible. Investments should be suitably defined (more narrowly and focused on infrastructure in a traceable way) and the scope for borrowing should be concentrated on additional investment (in the sense of increased investment). In addition, it seems advisable that when the debt brake is fundamentally reformed, sound public finances must again be reliably safeguarded and the debt ratio must be limited.

The Infrastructure and Climate Neutrality Fund is intended to finance additional government investment in order, above all, to strengthen infrastructure. In March 2025, legislators enshrined €500 billion of borrowing scope for the Fund for an approval window of 12 years in the Basic Law. Of this amount, €300 billion is earmarked for central government investment in infrastructure. A further €100 billion is reserved for investment projects by state governments (including their local governments) and €100 billion for investment in climate neutrality. 

The Bundesbank recommends a comparatively easy-to-apply and transparent approach that is as targeted as possible. 

The proposed approach deviates from the definition currently used by central government when drawing on the special fund (for more concrete, quantitative details on the plans, see Chapter 3.1.2 below). This is not intended to question central government’s approach from a legal perspective. Rather, it is a question of finding an economic definition that captures additional central government expenditure on its own infrastructure as well as possible. This is why the concept of “investment” used by the Bundesbank excludes expenditure on development aid, calls on guarantees and investment grants to non-government enterprises, for example. Furthermore, investment that is already financed by loans under the exemption for defence spending is also excluded here. By contrast, central government includes all of the aforementioned cases in its definition. In addition, for the purposes of assessing and ensuring additionality, central government has opted for a ratio to core budget expenditure as a benchmark (10 % of expenditure after deduction of financial asset acquisition and excluding the sectoral exemption for defence spending). That ratio was already significantly exceeded in 2024 on balance. From this starting point, the Infrastructure and Climate Neutrality Fund can therefore take on some investments from the core budget and finance them on credit without failing to meet the central government’s additionality criterion. In the core budget, these shifts open up scope for additional current expenditure or tax cuts, for example.

In some approaches, additionality is measured by the extent to which expenditure goes beyond previous plans 8 or specific new projects are financed. 9  However, this seems less practical and transparent:

The chart below shows how central government intends to use the off-budget special fund’s net borrowing according to its plans for 2025 and 2026. 10 The breakdown is based on the Bundesbank’s understanding of additionality in respect of infrastructure-related investment as outlined above.

Accordingly, the additional investment expenditure described above for central government infrastructure accounts for only a small part of the special fund’s allocation of funds (under “Central government infrastructure” in Chart 4.2). In the starting year 2024, investment expenditure on central government infrastructure amounted, in the proposed definition, to €31 billion. According to plans for the central government core budget (excluding the debt-financed exemption for defence spending) and for the Infrastructure and Climate Neutrality Fund, this infrastructure expenditure is expected to be around €2½ billion higher in 2025 and €16 billion higher in 2026. 

A large part of the resources from the special fund are channelled into other central government uses (under “Other” in Chart 4.2). The corresponding amounts of €16 billion for 2025 and €24 billion for 2026 are the product of various factors relating to the special fund and the core budget:

In addition, substantial funds flow from the Infrastructure and Climate Neutrality Fund to the federal states via investment grants. Ultimately, these are likely to only partially flow into additional investment compared with 2024 (under “Allocation to federal states” in Chart 4.2). In both 2025 and 2026, €8½ billion is earmarked for payments to state governments, which are also intended to finance local government investment. Payments are not conditional on state governments demonstrating additional investment. The federal states explicitly rejected such a commitment. As things currently stand, therefore, and in view of the considerable budget bottlenecks, especially for local governments, it seems doubtful that state and local governments would use the funds from the special fund to finance a significant amount of additional investment.

In addition, around €10 billion per year are earmarked for transfer from the special fund to the Climate Fund (under “Allocation to Climate Fund” in Chart 4.2). According to the Basic Law and the law establishing the Infrastructure and Climate Neutrality Fund (Gesetz zur Errichtung eines Sondervermögens Infrastruktur und Klimaneutralität), this money is intended to finance additional investments in climate neutrality. However, after deciding on these additional resources for the Climate Fund, central government did not go on to plan any major additional climate protection investments there. Instead, it transferred the gas storage levy of €3½ billion to the Climate Fund in 2025. In addition, it largely reduced the previously estimated saving needs in the Climate Fund plan (specifically, it reduced the global spending cut that covered a financing gap). For 2026, it decided to subsidise electricity grid charges to the tune of €6½ billion. Apart from such current transfers, it also provides investment grants from the fund to third parties (which, as outlined above, were partly relocated to the Infrastructure and Climate Neutrality Fund in 2026). By contrast, expenditure to strengthen central government infrastructure is not included in the Climate Fund.

Against this backdrop, the Bundesbank is expecting a marked increase in general government non-military investment. However, this additional investment is significantly below the borrowing of the Infrastructure and Climate Neutrality Fund. The Bundesbank has produced a forecast in line with the national accounts schema (for more details on the demarcations used there and how it differs from the budgetary definition, see in-depth analysis 1). According to the current forecast, general government non-military investment as a percentage of GDP in the forecast-end year of 2028 is ½ percentage point higher than in 2024. Growth in this infrastructure-related national accounts category over the forecast thus reaches less than half of the expected borrowing of the off-budget special fund over the same period of time. 15

As a result, the Bundesbank recommends that the rules for the use of the special fund be modified in order to channel the additional borrowing towards higher infrastructure investment in a more targeted manner in future. 16 In concrete terms, this means the following:

Individual parameters of these proposals may, of course, vary without fundamentally changing the suggested framework. In general, however, it should be borne in mind that if the definition of investment is somewhat broad or vague, or if the benchmark is towards the lower end of the scale, borrowing by the special fund will probably more frequently finance expenditure that does not go towards improving government infrastructure. In view of this, consideration could be given to incorporating additional expenditure categories into the investment spending to be taken into account, or to further refining these. However, adopting a more complicated approach might risk reducing transparency and traceability. In any event, the link to infrastructure would need to be established and ensured in line with a modified definition. With regard to the comparison year, multiple past years could be used (2022 to 2024, for example), rather than just the year 2024. As investment was lower in previous years, the scope for borrowing for non-investment expenditure would thus be reinforced, with infrastructure bolstered to a lesser degree. 

Looking at the point in time at which new rules enter into force, a transitional arrangement could, in principle, also be considered to prevent the new approach from being interpreted as an abrupt pivot. A transitional arrangement could provide for a gradual convergence to the more ambitious requirements of the proposal over the coming years. 

When it comes to infrastructural improvements, it is not solely the deployed funds discussed above that matter. Ultimately, it is the results achieved by this expenditure that are important. In this respect, it is encouraging that the Act Establishing the Special Fund for Infrastructure and Climate Neutrality provides for various efficiency reviews for debt-financed measures. It appears that there are plans to expand the standard economic feasibility studies, particularly with regard to the effects of growth. However, the Federal Government has not yet provided any information on how this will be implemented. 

In order to be able to quantify the results of the new projects, the government is required to operationalise the objectives of the special funds. Effective projects could be identified on this basis. 

Furthermore, it is important to keep a close eye on costs. Carrying out numerous additional projects in a cost-effective manner presents a challenge. In the past, it was clear that increased sums of investment in the transport sector were, in some cases, accompanied by considerable price mark-ups. 19 In order to ensure the cost-effectiveness of the use of funds, government authorities could, for example, publish construction figures that are also suited for comparable projects. Conceivable examples could be the cost of a newly constructed kilometre of traffic lane, or a fully renovated kilometre of railway track. This information could be used to identify best practices and create an incentive to align with them. 

Accelerating the contract awarding and approval processes and increasing the digitalisation of public administration also seems crucial. Accelerated processes are important if the investment gap is to be closed swiftly. This, too, is the aim of several projects launched by central and state governments last year.

Higher investment expenditure can be stabilised over the coming years via the Infrastructure and Climate Neutrality Fund. In addition, follow-up provisions could be adopted in a timely manner for further stabilisation. The EU fiscal rules with their ceilings for annual expenditure growth suggest that use of resources from the special fund should be uniform in terms of GDP. Furthermore, the private sector will then be able to better align its capacities with the provisions. The prospect of follow-up provisions is likely to help keep price increases caused by scarce capacity in check. Overall, government investment expenditure, which is rising fairly steadily along with GDP, should run less risk of being dissipated by price increases.

The Bundesbank recommends incorporating the follow-up provisions for investment borrowing scope into a fundamental reform of the debt brake. 20 Permanent, steady scope for additional investment borrowing following the expiry of the special fund, the reduction of the general government deficit in a transitional phase and a tightening of the permanent borrowing limit going forward should come together. On the back of these components, the Bundesbank’s broader proposal would safeguard sound public finances and limit conflicts with the European fiscal rules. Here, an overall package is key: if scope for investment borrowing were instead to be extended in isolation and added to the existing sectoral exemption for defence spending, the stability risks to public finances would increase.

The recommended follow-up provisions to the Infrastructure and Climate Neutrality Fund as part of a fundamental debt brake reform will help to stabilise investment in government infrastructure at an elevated level over the long term. The follow-up provisions would take effect in the third stage of the proposed debt brake reform from 2036 onwards and provide for a permanent scope for borrowing for additional investment amounting to 0.8 % of GDP. Assuming a relatively uniform outflow of funds from the special fund, a similar volume of remaining funds is likely to flow out from this fund in the preceding year, 2035. For the follow-up provisions, it is just as important as for the special fund that access to this borrowing scope is precisely tailored. The proposal for the debt brake reform is therefore heavily based on the recommendations for the special fund.  

There are different methods of recording government investment expenditure in the statistics: first, in line with the national accounts, which are geared towards economic principles, and second, according to the cash-based government finance statistics, which use the government budget planning system.

The national accounts are well suited for economic analysis. The definition of investment in the national accounts is based on government fixed assets. Government investment in the national accounts is thus largely linked to infrastructure. Restrictions in this area mainly concern intangible fixed assets – in connection with research activities, for example – and weapon systems.

The national accounts provide a consistent database over time and in an international comparison on the basis of economic principles. The methodological basis of the national accounts is reviewed regularly and the data are revised consistently (i.e. also retroactively) as necessary. 22 The national accounts statistics are also important because they provide the groundwork for European fiscal surveillance. In addition to the European institutions, the IMF and the OECD also base their public finances statistics on national accounts data, in methodological terms. For international comparisons, the government investment ratio is mostly calculated as gross fixed capital formation in relation to GDP at current prices. 

Government gross fixed capital formation reflects the acquisition (expenditure) less the sale of (revenue from) durable fixed assets. Durable fixed assets include buildings and structures, machinery and equipment, and intellectual property. 23 The national accounts allocate the investments to the period during which construction or delivery takes place – and not the time at which payment is made. In simplified terms, investment is considered to be governmental if the government sector bears the relevant risks of such investment. 

The national accounts’ net fixed capital formation is gross fixed capital formation less write-downs on the stock of fixed assets. It indicates investments above and beyond the replacement of (imputed) depleted capital. In this context, total fixed assets (excluding land), including intellectual property, are generally written down at constant annual rates. Typical service lives lasting different lengths of time are incorporated for different types of goods. These are significantly longer for buildings than for machinery and equipment and for created intellectual property. The starting point for the level of write-downs is the replacement value of the assets in the period under review. 

Government investment expenditure in the government finance statistics is derived from payment flows in government budgets that have an effect on the cash balance. Central and state governments record investment expenditure in their budget plans and report budget outcomes for the cash statistics and accounting figures published by the Federal Statistical Office. The data are based on the common budget system for central and state governments (classification scheme for government budgets based on Section 10 of the German Budgetary Principles Act (Haushaltsgrundsätzegesetz)). 24  

Investment based on government finance statistics serves as, inter alia, a reference point for budgetary rules, such as for the investment-oriented scope for borrowing discussed in Chapter 3. It is compatible with the approaches used in budget planning and is also relatively manageable during budget implementation. 

The definition of investment is broader in the government finance statistics than in the national accounts. First, investment spending recorded in the budget includes fixed asset formation. Construction work and the purchase of movable and immovable property count towards this. Second, it includes investment in financial assets, i.e. financial investment (expenditure on loans and the acquisition of equity). Third, it includes investment grants to other general government budgets and investment grants to enterprises or institutions outside the general government sector. 25  

The government finance statistics data are the most important basis for determining government expenditure and revenue in the national accounts. The relevant government finance statistics are included in the national accounts insofar as they are relevant for these. At the current end, the general government budget in the government finance statistics (core budgets and off-budget entities) and the government sector in the national accounts are virtually identical. Because the government finance statistics, unlike the national accounts, are not revised retroactively, the sectoral definitions used in the past do not match (for example, with regard to the classification of Deutsche Bahn). 

Investment is reported differently in the government finance statistics and the national accounts. Table 4.1 gives an overview of conceptual differences. Table 4.2 compares the results for 2024 according to the two sets of statistics.

On balance, government investment for 2024 is almost one-half higher in the government finance statistics than in the national accounts.

While investment as defined for the purposes of the government finance statistics stood at €192 billion (see Table 4.2a), gross fixed capital formation amounted to €132 billion in the national accounts (see Table 4.2b). Investment as displayed in the government finance statistics is primarily higher because it includes financial transactions and investment grants to third parties. In addition, the national accounts deduct revenue from the sale of non-financial assets on the expenditure side. Conversely, in the national accounts, military procurement and the acquisition of intellectual property are included in investment. Comparing only fixed asset formation in the government finance statistics (€107 billion) against tangible fixed assets in the national accounts (€104 billion), there is a stronger agreement between the two.

The Bundesbank recommends a pragmatic definition of investment that is as infrastructure-related as possible in order to channel expanded scope for borrowing into additional infrastructure investment in a more targeted manner (see Chapter 3). In the following, the central government definition is presented in more detail and compared with the definitions used in the government finance statistics and national accounts. 

For central government, the proposed definition of investment comprises the following government finance statistics items from the central government budget and central government’s loan-financed entities (such as the Infrastructure and Climate Neutrality Fund as from 2025):

For state and local governments, simplified approaches are more suitable: a definition focusing on fixed asset formation in the sense of the government finance statistics for the core budgets and off-budget entities taken together would be quite close to the central government definition. 26  

In future, the extent to which central government’s infrastructure-related investment has risen on balance can be roughly determined ex post using the results for the category of fixed asset formation in the government finance statistics (see Table 4.2a, item (1a)). According to the government finance statistics, general government’s fixed asset formation stood at €107 billion, or 2.5 % of GDP, in the starting year of 2024. 27 Provided that the fixed asset formation ratio rises in relation to this, government investment in the area of infrastructure can be judged to have risen.

In the national accounts, non-military investment in tangible assets would, in principle, be a suitable category for capturing developments in infrastructure-related investment. In view of this, it would be preferable for the national accounts to record separate statistics for this category in future. 28  As the national accounts record investment in line with completion, the link to cash-based payment flows is less direct than in the figures from the government finance statistics. That aside, however, developments in payment flows and investment recorded in the national accounts should be similar. Irrespective of the issue being discussed here, it would also be desirable, for the purposes of macroeconomic analysis, for the national accounts to provide figures on investment in tangible assets split into military and non-military investment. This is because military investment is set to gain significantly in importance going forward and will have a considerable impact on developments in government investment expenditure.

The government capital stock is the value of government non-financial assets. It is formed by gross fixed capital formation, valued at current prices and reduced by disposals and write-downs.

In simplified terms, capital stock is often defined as gross fixed assets recorded in the national accounts at replacement prices (the government finance statistics do not refer to capital stock). Gross fixed assets are the stock of (previously produced) assets that can be used for more than one year. It is calculated using the perpetual inventory method: invested gross fixed assets are recorded and subsequently derecognised at the end of their average useful life (i.e. that of the individual categories of fixed assets). 29 In principle, in the gross concept, fixed assets in the asset stock retain their current new value as far as they can still be used (i.e. at replacement prices with no impairment). 30 Gross fixed assets at replacement prices thus correspond to the acquisition value of the capital stock that would still be usable if it were to be repurchased in full in the respective reporting year. Change in this metric is due to acquisitions and disposals of fixed assets (gross fixed capital formation minus derecognition of retired assets plus the balance from sector changes in the reporting year). In addition, changes in replacement prices are taken into account (balance of holding gains and losses).

In the case of net fixed assets at replacement prices, by contrast, gross fixed capital formation is recorded and then depreciated evenly over the useful life of the assets (calculated loss in value). Net fixed assets thus represent fair value. In this context, a linear depreciation is assumed (constant annual rates). 31 The change in net fixed assets is calculated as the prior-year figure less new write-downs and early disposals, plus new acquisitions (gross fixed capital formation) and the balance from sector changes in the reporting year. In addition, there is the balance of holding gains and losses relative to the remaining residual value. 

The degree of the government capital stock’s modernity is derived from the ratio of the net capital stock to the gross capital stock. 32 In principle, this metric shows the share of gross capital stock that has not yet been written off. At the time an investment is made, the gross and net fixed assets to be allocated are equal. Subsequently, the corresponding net fixed assets decline in a linear relation to typical useful life, while the corresponding gross fixed assets do not decrease until their modelled derecognition at the end of their typical useful life. In principle, a low degree of modernity indicates that a high share of the capital stock has already been used for a long time, or is “old”. However, no conclusions can be drawn with regard to the extent to which usability is restricted as a result, or what value would be appropriate. 

The government investment ratio (national accounts) has been rising again in Germany for a number of years, having been at a lower level for an extended period of time following the post-reunification peak (see Chart 4.3 below). National accounts data are available in the current definition for the period since reunification. In 1992, the investment ratio reached its highest level, at 3.3 % of GDP. Thereafter, by the mid-2000s, it had fallen to 2.2 %. Over the past six years, it has returned to around 3 % (2025: 3.2 %). 33 However, it should be borne in mind that the ratio is higher from 1999 onwards, as the infrastructure division of Deutsche Bahn was assigned to the general government sector following the railway reform at that time (investment volume of around ¼ % of GDP). 34 Three-fifths of investment in recent years was attributable to buildings and structures, while the rest consisted of investment in machinery and equipment and investment in intellectual property in roughly equal parts. 

The significant decline in the investment ratio in the meantime was mainly attributable to the local government level. Local government investment concerns, in particular, the construction of local transport routes and school and administrative buildings, as well as recreational and cultural facilities. At the beginning of the 1990s, the local government level still accounted for one-half of all government investment. However, its investment ratio declined steadily after the short peak of government investment in the new federal states (1992: 1.7 % of GDP), and had halved by 2005. The tight financial situation of many local governments probably also played a role: after reunification, their social spending rose far more steeply than their revenue. The strain on local government finances was also reflected in a surge in local government cash advances in some federal states. 35 Furthermore, however, the decline in the investment ratio was also due to major spin-offs: entities previously recorded in the general government sector and their investment were reallocated to the private sector (public corporate sector). 36 This was particularly the case in the areas of waste management, wastewater management and water supply. The local government investment ratio has risen again somewhat, reaching 1 % in recent years. 

The state governments’ investment ratio has been fairly stable overall. The state governments make significant investments in intellectual property because investment in basic and applied research at the state universities falls to them. Somewhat less extensive is the funding of construction activity, which concerns not only state roads but also universities and administrative, police and court buildings. The state government investment ratio has been fairly stable, coming in at just under 1 %.

Central government’s investment ratio has trended upwards, also because railway infrastructure was reallocated to the general government sector in 1999. Central government has been investing primarily in Germany’s federal rail and road infrastructure, the federal administration and the defence sector. In the case of central government, too, the investment ratio initially declined after the post-reunification high. In 1999, it then increased markedly once more, mainly because the infrastructure division of Deutsche Bahn has been part of the government sector since the railway reform of that year. Most recently, the ratio rose to over 1 %, not least due to higher construction investment in, for example, railways and motorways. 

At present, government investment is spread to a similar extent across central and local government and to a somewhat lesser extent across state governments. This means that shares have shifted away from local governments and, above all, towards central government over time; this is irrespective of the railway reform.

In terms of the various investment sectors, the bulk of investment was attributable to transport, administration (including research) and education. General government gross capital formation 37 can be broken down by government functions (COFOG). According to this breakdown, the largest share is attributable to economic affairs (at 1.1 % of GDP in 2024). Expenditure in this area is mainly channelled to transport. General public services (including basic research) accounted for one-quarter of general government investment (0.8 % of GDP) in 2024. Its share has risen since the mid-2000s because, amongst other things, investment in basic research has increased significantly. The investment ratio in the education domain mainly comprises the construction of schools and universities, standing at 0.4 %. Investment in defence (especially purchases of weapons systems) accounted for only a small share of government investment. It has fluctuated only slightly over time, most recently amounting to 0.2 % of GDP. 

The level of government investment in the areas of environmental protection, housing and health is low in Germany, as most of the investment in these areas comes from the private sector.

Starting this year, the investment ratio will rise significantly due, first, to the loosening of the debt brake for defence spending and, second, to the Infrastructure and Climate Neutrality Fund. The Federal Government plans to substantially increase defence spending, raising it by 1¼ % of GDP by 2029. Much of the increase is probably attributable to the procurement of weapons systems and thus to machinery and equipment investment. Resources from the Infrastructure and Climate Neutrality Fund are likely to boost investment in transport, administration and education, at least in large part. According to the Bundesbank’s current forecast, government gross fixed capital formation will rise from 3.1 % of GDP in 2024 to around 4½ % of GDP in 2028. However, future investment growth is difficult to estimate with any degree of certainty, be it for military or non-military purposes. 

Changes in the government net investment ratio 39 also reflect the aforementioned underlying trends. It was at times negative in the 2000s. It has been back in slightly positive territory for ten years. Like the gross ratio, the net ratio was relatively high following Germany’s reunification (0.9 % in 1992). Net construction investment, in particular, fell sharply thereafter. In recent years, the net investment ratio has stood at around 0.2 % of GDP. 

Local governments are the key factor driving the fall in the net investment ratio, too. While local governments were still racking up comparatively high positive net investment ratios in the early 1990s, these have been almost consistently negative since 2002. The ratio has stabilised at close to zero over the past few years. By contrast, net investment by state governments is predominantly positive, though it has declined in recent years. Following reunification, central government initially recorded negative ratios. Since 1999, central government’s positive net investment ratio has tended to be higher than the equivalent local and state government ratios. The sharp increase in 1999 is likely to relate to rail infrastructure being assigned to the general government sector. 

Looking ahead, significantly higher net investment is also expected. According to the Bundesbank’s current forecast, government net investment will rise from 0.3 % of GDP in 2024 to over 1 % of GDP in 2028. However, a higher gross investment ratio and the gross capital stock increase that comes with it will then also mean larger write-downs over time. In other words, if general government stabilises the gross investment ratio at a higher level in the future, the larger write-downs will subsequently lower the net investment ratio again (for a stylised relationship between gross investment, net investment and capital stock, see the supplementary information entitled “What determines the development of the capital stock – influencing factors and stylised scenario calculation”).

Looking back over the longer term, government gross capital stock 40 has been relatively stable in relation to GDP. It has risen more sharply in the past few years, reaching 96 % in 2024. 41 However, it should be borne in mind that price changes (deflators) for GDP and capital stock diverged considerably at times. While price changes were stronger until the mid-2000s according to the GDP deflator, the opposite has been true since then. Adjusting for price changes, the increase in gross capital stock has all but disappeared since 2018 (and price-adjusted gross capital stock was higher than unadjusted gross capital stock before 2018). 

Local governments currently account for almost one-half of government gross capital stock. As a result of spin-offs from the general government sector, lower investment activity and relatively stable replacement costs, local government gross capital stock decreased from around 50 % of GDP in the 1990s to 42 % at the end of the 2010s. Since then, however, it has rebounded to 46 %. By contrast, central government gross capital stock was higher than in the 1990s (2024: 29 %). This is probably related partly to rail infrastructure being assigned to the general government sector in 1999 and partly to increased investment and replacement cost movements in recent years. The latter is also likely to be the main reason why state government capital stock as a percentage of GDP has risen in recent years (2024: 19 %).

Government gross capital stock primarily comprises buildings and structures. Their useful life is much longer than that of machinery and equipment or intellectual property (depreciation rates are lower). As a percentage of GDP, the value of buildings and structures stood at 82 % at the end of the period covered here. Just over half of this was attributable to civil engineering works (2024: 43 % of GDP). These include, in particular, transport infrastructure with the road and rail network, including bridges and tunnels. Federal motorways account for just over one-quarter of the capital stock of roads (6 % of GDP). The remaining buildings and structures consist of structural engineering works (37 % of GDP) such as school, university and administrative buildings and, to a very small extent, residential buildings (1 % of GDP). The percentage of GDP for structural engineering works, in particular, surged recently, largely as a result of higher construction prices. This increase should therefore be interpreted with caution, because higher construction prices do not imply a more efficient infrastructure. The gross capital stock of machinery and equipment equates to 8 % of GDP. This includes, for example, weapons systems, machinery and vehicles. Intellectual property represents 6 % of GDP. Examples of this are computer software and databases (either acquired or self-developed) as well as basic research findings. 42 This category is also receiving a lot of attention in today’s increasingly knowledge-based economy. However, the typical useful life of intellectual property is relatively short, meaning that higher expenditure is reflected to a lesser extent in gross capital stock over the long term. 

Unlike the gross capital stock ratio, the government net capital stock ratio fell markedly over more the half of the last decade. Net capital stock takes into account the fair value of fixed assets. It contracted from 56 % of GDP after reunification to around 43 % of GDP in 2017. This was due to both low net investment and relatively low increases in prices of buildings and structures. An upward trend in the ratio can be observed from 2020 onwards (2024: 48 %). However, this was largely due to the aforementioned price effects (the prices of government buildings and structures were rising more quickly than the GDP deflator). 

The progressive decline in the modernity of the capital stock indicates that the capital stock has aged over time. However, an aggregate indicator such as the ratio of net to gross capital stock (see above) provides, at best, an idea of where there is room for improvement. Whether and where this exists has to be assessed on a case-by-case basis. This is because some capital goods continue to function sufficiently despite their advanced age. For example, even roads with old foundations can still be largely adequate provided the surface is in good condition.

Government investment in Germany has been markedly below the average of the other euro area countries for a long time, though the gap has narrowed most recently. In Germany, government gross fixed capital formation amounted to 3.1 % of GDP in 2024. This was 0.5 percentage point lower than the (unweighted) average of the other euro area countries. Compared with the large euro area countries, Germany’s ratio was significantly lower than that of France (4.3 %) and Italy (3.6 %), but roughly on a par with that of Spain. As of 2021, Spain and Italy started to benefit considerably from investment grants from the EU’s NGEU transformation programme. In addition, it is difficult to compare some of the smaller central and eastern European euro area countries with Germany: their higher level of investment can also be explained by the macroeconomic catch-up process and, in some cases, higher military investment. Overall, investment in Germany was higher than the average of the last 25 years at the end of the period covered here, but it was lower than the average of the other euro area countries. 

Of the COFOG functions, Germany’s government expenditure on general public services (including research and development) and education was higher and roughly on a par respectively. Government investment in general public services and research and development in Germany stood at 0.8 % of GDP in 2023, while the average figure for the other euro area countries was 0.6 % of GDP. 43 Investment in education was slightly above the level of the other euro area countries (0.3 % of GDP).

Investment in defence has been somewhat lower in Germany since the mid-1990s. In 2023, it amounted to around 0.2 % of GDP in Germany and Spain. In France and Italy and on average for the euro area countries excluding Germany, this figure was 0.3 % of GDP. Investment ratios were higher in Greece, Cyprus and the Baltic members of the euro area, at around 0.5 % to 1.3 % of GDP.

Government investment in transport infrastructure was also below average in Germany. Since the mid-1990s, Germany’s government investment in economic affairs (mainly transport), the COFOG function with the largest share, has been below the average of the rest of the euro area countries. In 2023, it amounted to 1.0 % of GDP for Germany and 1.2 % of GDP for the other countries. 

On the whole, differences in government investment ratios should be interpreted very cautiously: their informative value is generally limited, not least because functions are not assigned uniformly to the public and private sectors. For example, Germany’s relatively high level of government investment in general public services (including research and development) and education could be due in some measure to these functions being more strongly represented in the private sector in other euro area countries. This may concern whole entities or public-private partnerships, in which private companies finance investment for the public sector. Conversely, there is some evidence to suggest that health services and the investment associated with them are more heavily based in the private sector in Germany. While government investment in Germany in the COFOG functions of health and social protection was below the average of the rest of the euro area countries in 2023, Germany was the leader in aggregate investment in human health and social work activities in the same year. 44 This is because most healthcare facilities in Germany are not part of the general government sector. This is probably the case for environmental protection, too. 45

As a result of lower government investment, Germany’s government net capital stock is also rather low compared with other large European countries. 46  This is ultimately the result of lower investment ratios over the past decades. Germany’s government net capital stock amounts to 48 % of GDP (net fixed assets). Ratios are higher in France and Italy, at over 62 % and 55 % respectively, as is the average of the euro area excluding Germany (54 %). 47 Here, too, differences in the split between the government and private sectors probably play a role. 

By international standards, the quality of German infrastructure still appears to be above average. According to the infrastructure index of the IMD World Competitiveness Center, for example, Germany is currently in the top 25 %. However, its ranking has deteriorated slightly in recent years. 48 However, being relatively well positioned compared with other countries does not mean that there is no need for action. This is especially the case where there is a downward trend, as investment countermeasures take time and as Germany, as a highly developed, prosperous economy, relies on an above average level of infrastructure.

Several specific infrastructure vulnerabilities are obvious, for example, if routes are chronically congested, bridges are passable only with restrictions, trains are often delayed and schools need renovation. Educational institutions and public administration have also made little use of digital technologies to date. Specifically, an index published by the European Commission shows that Germany ranks rather unfavourably when it comes to digital administration. Most recently, it placed 23rd out of the 27 EU Member States. The latter could also be contributing to the high bureaucratic costs that are increasingly bemoaned as a drawback for Germany as a business location.

Surveys confirm this picture. In a recent survey conducted by the German Economic Institute, more than one-quarter of the firms surveyed reported that infrastructure deficiencies were significantly hindering their business activities. 49 Road and rail infrastructure, in particular, was cited as problematic. 

Central government reporting also points to transport infrastructure deficiencies in several areas. According to the 2023 Transport Investment Report, the utility value of federal motorways was assessed as being good overall. 50 However, the surface condition of almost one-fifth of federal motorways was found to be poor or very poor. 51 In addition, around one-third of motorway bridges were deemed to be in need of modernisation or reinforcement. 52  Against this background, central government launched a programme back in 2022 to modernise critical motorway bridges, targeting the worst structures, by 2032. In 2025, however, the Federal Court of Auditors criticised the sluggish pace at which the programme was being put into action. 53 DB InfraGo’s 2024 status report on the rail network and train stations points to an urgent need for modernisation in these areas. 54  Looking at waterways, too, a review by the Federal Court of Auditors found that insufficient funds had been invested in recent years for the maintenance and upgrade of dilapidated infrastructure. As a result, they have fallen into worse condition. 55  

Consistent with this, multiple studies show that substantial infrastructure investment is needed. 56 Dullien et al. (2024), for example, update the original estimation by Bardt et al. (2019) to calculate additional expenditure requirements for infrastructure and decarbonisation that are not covered by current budget funds or regular budget planning. For the 2025‑34 period, they estimate such general government needs to run to just under €60 billion per year on average (almost 1½ % of current GDP). 57 The OECD (2025) states that Germany requires additional investment of around €40 billion to €60 billion per year up to 2035 (around 1 % to 1½ % of GDP). This figure also includes investment to accelerate the green transformation and strengthen energy security. Separate studies also show that local governments, in particular, are suffering from considerable underinvestment. 58 Overall, the studies consistently indicate that Germany needs to invest more in public infrastructure in the coming years. 
 

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