| Technological progress is the most important driver for productivity growth. However, investments in the capital stock are usually central for technological progress to have an effect in a country. Investments in machinery, software, transport equipment, or buildings are therefore important. After the financial crisis, the decline in investment rates was lamented in many countries. This decline was often interpreted as a continuation of a trend that had already begun in the 1960s and 1970s. The low investments were discussed in connection with the concept of „secular stagnation.“ Investment gaps were derived in Germany and elsewhere, which was partly associated with heated scientific and political discussions. With some distance, the development of investment rates – expressed here as nominal gross fixed capital formation as a percentage of nominal gross domestic product – can now be viewed with a fresh perspective.In the United States, where economists initiated the discussion about weak investments more than ten years ago, the investment rate has recovered somewhat (Figure 1). The investment rate is now back at a level similar to that of the early 1990s. In the 1960s, the investment rate was only slightly higher than today. Before the financial crisis, the real estate boom contributed to temporary high investments. In German-speaking countries, too, investment rates no longer show a downward trend. In Germany, however, the investment rate remains significantly below the levels in Switzerland and Austria. For a country that still has a comparatively strong industry, this is surprising despite the slight recovery. When looking at the large countries in the euro area, there is also no downward trend overall – especially if one ignores the Spanish real estate boom before the financial crisis (Figure 2). A number of medium-sized European countries (Netherlands, Belgium, Sweden, and Denmark) have also shown no downward trend since the 1990s (Figure 3). Many people in advanced economies still assume that investment rates continue to decrease in trend. However, this statement is exaggerated, at least based on these data and figures. It is true, however, that investment rates were sometimes significantly higher in earlier decades – especially in Switzerland and also in Germany. While it is true that the need for investment has likely decreased somewhat given the growth of services, one should nevertheless raise the question of how incentives for investment can be improved in view of the challenges – for example in the areas of energy, environment, security, or demographic change. Higher investment would help us make our economies deal with these challenges. Figure 1  Figure 2  Figure 3  ——————————————- What caught our attention (selection): US Trade Policy Burdens Europe, Artificial Intelligence and Jobs, Productivity and Greenhouse Gas Emissions, and More Everyone is interested in current trade and tariff developments. There are many excellent resources to help understand them. In German speaking countries, the Kiel Trade and Tariffs Monitor is highly recommended. A group of economists at the Federal Reserve Bank of Richmond (primarily Marina Azzimonti, Zach Edwards, Sonya Ravindranath Waddell, and Acacia Wyckoff) regularly publish tariff updates. The Budget Lab at Yale also frequently publishes its State of U.S. Tariffs. Similarly, the Tax Foundation produces valuable analyses on the budgetary and economic effects of the tariffs: A number of other influential think tanks publish high-quality articles and podcasts, or organize interesting events. For instance, the Peterson Institute for International Economics, Cato, or the Brookings Institution. Other noteworthy think tanks and research institutes also conduct valuable analyses. While the tariff policy is erratic and uncertain, there is no shortage of high-quality reports and podcasts. ——————————————- There is s a lot of new information these days for everyone interested in the economy in Germany and the USA! At the beginning of April, the Joint Economic Forecast was also published, in which the largest German research institutes together create an economic forecast and conduct additional economic policy analyses. Geopolitical Upheaval Exacerbates Crisis – Structural Reforms Even More Urgent „The German economy continues to be in crisis. The beginning of 2025 is characterized by significant domestic but also foreign policy changes. In Germany, economic policy uncertainty is high due to the change in government. At the same time, the protectionist trade policy of the USA is burdening the German economy. In addition, with the new government in the USA, the security situation in Europe has deteriorated.“ „Gross domesticproduct is likely to barely more than stagnate this year with an increase of0.1%. The institutes are thus revising the forecast from autumn 2024 quite significantly downward by 0.7 percentage points. In particular, during thesummer half of 2025, the momentum is now expected to be weaker due to US tariff policy.“ ——————————————- Interesting articles in the journal „Die Volkswirtschaft“ on the economic effects of artificial intelligence (in German). Artificial Intelligence: What Do You Bring Us? „Overrated – or is artificial intelligence bringing heaven to earth? Experts disagree, and so does politics. What’s clear: Switzerland is playing at the very top internationally in AI research.“ ——————————————- Super interesting! „Use it or lose it: How cognitive skills change with age“ by Eric Hanushek, Lavinia Kinne, Frauke Witthoeft, and Ludger Woessmann „Cognitive skills are commonly assumed to begin deteriorating from the age of 30, which could pose a significant challenge for rapidly ageing populations. But this assumption relies largely on cross-sectional data that cannot distinguish between ageing patterns and cohort differences. Using German longitudinal data, this column finds that skills, on average, increase markedlyinto one’s 40s before decreasing slightly in literacy and more severely innumeracy. In addition, skills decline at older ages only for those withbelow-average skill usage, outlining a clear policy pathway for avoiding skill declines.“ ——————————————- Highly relevant! “Emissions-adjusted total factor productivity” by Lukasz Rachel and Maarten de Ridder “…production comes with emissions that stay in the atmosphere for decades, which means that productivity does not capture the full effect of today’s production on thepresent value of current and future output. We draw on the climate-macro literature to propose a measure for emissions-adjusted total factor productivity (TFPE) that takes these long-run effects into account.” ——————————————- Highly relevant! „Taxes and the Global Spillovers of AI Investments“ by Marcel Olbert and Emilia Gschossmann „Using a novel panel dataset, we find that AI investment strongly propagates internationally in the form of growth in foreign subsidiaries‘ assets, employment, and revenues.“ „European countries with attractive R&D tax incentives experience faster, larger AI-driven growth, while low corporate tax rates further amplify revenue spillovers.“ ——————————————- Great news! The Artificial Intelligence Index Report 2025 from Stanford has been published. „The AI Index offers one of the most comprehensive, data-driven views of artificial intelligence.“ |
While it is true that the need for investment has likely decreased somewhat given the growth of services, one should nevertheless raise the question of how incentives for investment can be improved in view of the challenges – for example in the areas of energy, environment, security, or demographic change.
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