KfW Research: Germany is falling well behind in research and development spending

• Inflation-adjusted R&D expenditure in Germany has stagnated since 2019
• At the same time, countries such as South Korea, Japan and the USA have significantly increased their R&D investment
• Targeted economic policy measures are needed

Germany is increasingly falling behind other countries in spending on research and development. Inflation-adjusted expenditure on research and development (R&D) has stagnated since 2019. Other leading R&D nations have clearly increased their spending.

Businesses in China, for example, have increased their R&D spending by 43 per cent in real terms since 2019. In the USA, South Korea and Japan, the increase has still been a notable 25, 21 and eight per cent. In Germany, however, businesses' R&D expenditure initially declined during the COVID-19 pandemic and picked up only minimally by just under 0.5 per cent up until 2023, the most recent year for which international comparisons are available.

These are the findings of a comprehensive chartbook with data on the innovation ecosystem in Germany prepared by KfW Research.

Germany has fallen behind in R&D investment in the academic sector, too, which includes universities and research institutes. It has dropped by five per cent in real terms since 2019. China, South Korea and Japan recorded an increase of 33, 26 and nine per cent. The USA boasted a rise of six per cent.

“One of the causes of the persistent weakness of the German economy is rapid technological change and a relative loss of competitiveness of German businesses in new technologies,”

said Dr Dirk Schumacher, Chief Economist of KfW.

“Germany’s economy cannot achieve a sustained economic upswing unless the country’s innovation system and, with it, the business sector, closes the gap to the global front-runners.”

Germany still has a highly efficient innovation ecosystem which, however, is coming under increasing pressure, Schumacher added. The country still exhibits the fourth highest R&D expenditure worldwide.

“Since the outbreak of the COVID-19 pandemic, however, Germany has not kept pace with the expansion of R&D efforts in other countries.”

Furthermore, R&D expenditure in Germany is heavily concentrated in large enterprises and businesses in traditional industrial sectors such as the automotive industry.

“It would be important to have targeted economic policy measures that enhance the innovative capacity of small and medium-sized companies as well. Besides, Germany needs to focus more on the potentials of new technologies. One way to do this would be through targeted support for start-ups,”

said Schumacher.

The complete chartbook on the innovation ecosystem can be found at KfW Research Chartbook | KfW (in German)

^{KfW supports SMEs with a number of promotional programmes on behalf of the Federal Government. More information is available at We are strengthening the SME sector (German page)}