2024-06-27-IMF-Germany_s_Foreign_Direct_Investment_in_Times_of_Geopolitical_Fragmentation_34页_3mb

Germany's inward and outward foreign direct investment (FDI) has experienced a weaker post-pandemic recovery compared to the United States and other EU countries. From 2020 to 2023, Germany's FDI flows increased by about 16 projects per quarter on average but remained significantly lower than pre-pandemic levels. Geopolitical tensions and energy price shocks, particularly from Russia's war in Ukraine, have contributed to the decline in German FDI flows to countries like Russia and China, while strengthening FDI to closer blocs.

The study employs two complementary datasets to analyze how geopolitical distance and energy prices impact Germany's outward FDI. Key findings include:

• Germany's FDI to the China-Russia bloc is more sensitive to geopolitical risks than FDI to US-aligned countries.
• Energy-intensive sectors show a statistically significant negative correlation with destination countries' energy costs.

The research also reveals structural changes in Germany's FDI flows, with reduced geographic concentration and a notable decline in strategic sector investments. Annually between 2020 and 2023, German firms invested an average of €28 billion outward and €985 billion in stock annually. Going forward, policymakers will need to consider how these trends affect economic resilience amid ongoing geopolitical fragmentation and energy market volatility.