German economy needs to invest more in knowledge capital

The efficiency of the German economy is powered by its knowledge-intensive industrial and services sectors. Yet the use of knowledge capital to drive innovation and productivity in Germany is rather low compared to other European countries and the United States. Germany is clearly lagging behind, especially in the services sector. The same applies to the industrial sector, where German businesses are not using knowledge capital to an above-average extent. Moreover, the level of knowledge capital modernity is low in Germany's industrial and services sectors, which jeopardizes the competitiveness of the German economy. The federal government has set a target for increasing R&D expenditure to 3.5 percent of GDP by 2025. In terms of corporate investments in total knowledge capital, this corresponds to an almost 35 billion euro increase in total annual investments. For this target to be achieved, conditions for investing in knowledge capital must be reviewed and improved.