(Bloomberg) -- German manufacturers are increasingly directing investments to the US, especially in sectors that use lots of energy and are thus more exposed to higher costs at home, according to the Bundesbank.
Domestic production in industries like chemicals, glass and paper collapsed by 15% in 2022, the year that Russia invaded Ukraine and sent natural-gas prices soaring, the German central bank said Tuesday in a report. At the same time, firms’ direct investments rose particularly strongly in the US, where energy prices are lower.
“In connection with the slump in industrial production in Germany, this could indicate that energy-intensive companies also use foreign locations because of comparatively low production costs,” the Bundesbank said.
Where German companies invest is closely watched because a stronger shift away from their home market would signal more permanent damage to the country’s growth prospects. The economy is already on track for a second annual contraction as firms lament an increasingly detrimental business environment — partly because of high energy costs.
“In addition to production conditions, geopolitical considerations are becoming increasingly important in the choice of location for German direct investment abroad,” the report said. “The US is particularly attractive for German companies, both in terms of production conditions and as a strategic partner.”
While China continues to be another important destination for German investments, momentum there has slowed and capital has also been withdrawn in some cases, the Bundesbank said.
In terms of attracting capital from abroad, the country recently lost ground to others in the euro area, including France and Spain. But the available data “do not suggest that international investors are turning their backs on Germany altogether,” it said.
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