Defense spending drives Germany’s public investment growth to highest level since 2000

Mucahithan Avcioglu

Germany’s gross public investment posted its strongest annual increase since 2000 last year, driven mainly by higher defense-related spending, official figures showed on Monday.

Gross public investment rose 12.3%, or €16.2 billion ($18.4 billion), from 2024 to reach €147.5 billion ($168.2 billion) in 2025, according to the Federal Statistical Office Destatis.

The increase marked the sharpest rise since 2000. A comparable jump was last recorded in 1999, when public investment climbed 14% due to the impact of railway reform.

Destatis said the strong growth in 2025 was mainly caused by a sharp rise in public equipment investment, which also includes military equipment.

Germany set up a special fund after the start of the Ukraine war to finance the modernization and restructuring of the Bundeswehr, the country’s armed forces.

The share of gross investment in total public spending also increased, rising from 5.9% in 2023 and 6.1% in 2024 to 6.5% in 2025.

Investment momentum slowed in the first quarter of 2026, however, with public investment rising 3.2% year-on-year. Its share in total expenditure stood at 5% during the period.

Among subcategories, equipment investment saw the strongest increase in 2025, jumping 47.7%, largely due to purchases of military weapons systems by the Bundeswehr. Equipment investment increased 7.6% in 2024, while the upward trend continued in the first quarter of 2026 with a 10.7% rise.

By contrast, public construction investment increased only 2% in 2025, well below the gains of 10.2% in 2024 and 8.9% in 2023. The slowdown was linked to the sharp rise in construction costs between 2022 and 2024.

Despite the historic increase, Germany’s gross public investment-to-GDP ratio remained at 3.3% in 2025, below the eurozone average of 3.7% and the EU average of 3.9%.

Meanwhile, Public gross fixed capital formation accounted for 16.3% of Germany’s total investment volume of €907.8 billion last year. The public sector’s share was 17.2% in construction, 16.5% in other assets and 14.7% in equipment.