Germany innovates slowly. Ifo Institute says focus on mature technologies, almost no R&D

Brussels – The German Ifo Institute slams Germany for its economic policy in the report “Is a mission-oriented innovation policy a better industrial policy?” According to the German researchers, Berlin “focuses mainly on the production of mature technologies, but almost not at all on research and development and new industries.” A backwardness that is in danger of becoming structural, making it even more complex to face the current challenges, such as “the problems of demographic change, the goal of climate neutrality, and the new geopolitical situation, which are challenges that will require new technologies and solutions.”

It is necessary to develop these technologies as soon as possible, and, for the research institute, it would seem complex to do so when “only 10 percent of industrial policy measures between 2017 and 2024 are related to research and development.” However, it should be remembered that Germany remains the EU country that spends the most in absolute terms on research (3.1 percent of GDP, or 128 billion). Despite the effort, a further criticism is that Berlin invests mainly in already known technologies, and very little in newly developed ones.

Germany is seeking to reverse this trend by increasing annual R&D expenditure to at least 3.5 percent of GDP by 2030. The coalition agreement between the CDU, CSU, and SPD in 2025 announced this objective. These increased investments must, however, be accompanied, according to the institute, by “incentives for private research,” the real engine of German innovation, which today finances 62 percent of the entire sector.

The report suggests a target-based policy approach. A concrete example was the “Energy System Mission 2045” of the Federal Ministry of Economy and Energy. In that case, the coordination of various actors (including grid operators, industry, administration, and private individuals), under state direction, pursues the goal of transition to a sustainable energy system.

An opportunity for increased investment in research and development could come from defense funding. Germany’s planned investment €108.2 billion in 2026 to renew its military force, and, for the Ifo Institute, this may be helpful as “military spending shifts the composition of public spending in favor of research and development in the long term.” However, Berlin’s investment approach would not be conducive to this goal, since “potential synergies remain largely untapped.” 

A structural problem is also in German start-ups. In Germany, the investment share remains lower compared to the United States, Sweden, and Israel. These countries have achieved higher shares of added value but have also recorded above-average growth rates. In summary, according to the Ifo Institute, “Germany has lost ground compared to the cutting edge.”