Tuesday, 1 April 2025 Reading time : 3 minutes

Germany has adopted an ambitious infrastructure package to modernize its infrastructure over the next years. The investment is urgently needed because for decades too little has been invested in railways, roads, bridges and mobile phone networks. But underfunding of public goods is not just a German problem; there is also an enormous investment gap at the European level. With the ZKB Tracker Certificate on a European infrastructure equity basket, investors can participate in the infrastructure turnaround.

Persistent investment backlog
The lack of investment has been a problem in Germany for decades, with public investment shrinking steadily since the early 1990s. This can be seen, for example, in the net public investment rate (gross public investment less depreciation, measured as a percentage of GDP), which fell from almost 1% to 0.2% in the 1990s and has hardly exceeded that level since. 

German infrastructure spending is also modest by European standards. According to data from the European statistics office Eurostat, only Portugal and Ireland invested less in infrastructure as a proportion of their gross domestic product. Data includes housing, roads, bridges, machinery, but also intangible goods such as computer software. Even in the long term, Germany lags behind the EU average: in the years 2012 to 2023, government spending on infrastructure was between 2.4% and 3% of GDP, while the corresponding figures for the EU range from 3% to 3.6%. 

New momentum thanks to financial package
The consequences of chronic underfunding can be seen everywhere today. "Crumbling roads, railways and bridges, an inadequate education infrastructure, outdated buildings, a lack of infrastructure for electricity, hydrogen and heat: the need for investment is growing across the country," the Institut der deutschen Wirtschaft (IW) and the Institut für Makroökonomie und Konjunkturforschung (IMK) said in a joint study in May 2024¹.

It is not possible to put an exact figure on the actual investment required. However, various estimates suggest that the German government will have to invest up to 600 billion euros over the next decade to put the economy back on a growth path and make it fit for the future^1,2. According to calculations by the IW and the IMK, there is an investment gap of around EUR 300 billion in municipal and national infrastructure alone. This includes, for example, public transport, the rail network, motorways including bridges and tunnels, but also the mobile phone network. 

The dispute over funding has so far blocked large-scale investment – the spending package now agreed could be the breakthrough needed to tackle infrastructure modernisation. Several sectors of the economy are likely to benefit from the planning and implementation of the major infrastructure programme, including construction companies, engineering services and machinery manufacturers. 

However, it is also clear that money alone cannot solve the infrastructure challenges. The debate on how to spend the money has only just begun. Long planning periods and further bureaucratic hurdles could prove to be additional stumbling blocks. 

Investment gap in Europe
The lack of investment is not limited to Germany. After the outbreak of the financial crisis in 2008, public investment in the euro area as a whole fell sharply and has not recovered since, according to a European Central Bank (ECB) paper³. 

Today, there is a huge investment gap in the face of looming challenges. "The European Union needs to push ahead with greening, digitalisation and strengthening its military defence. This will require significantly higher investment than in the past," ECB economists write⁴. They estimate that an additional EUR 900bn of public investment will be needed between 2025 and 2031 – but a coordinated approach to closing this financing gap is still lacking and is likely to be even more difficult to achieve than at the national level. 

For the time being, financial markets are focused on Germany, which could lead the way and shed its reputation as a stingy investor with the biggest infrastructure programme in the country's history. 

Participating in the infrastructure turnaround
For investors who want to participate in the infrastructure turnaround, the ZKB tracker certificate on a basket of European stocks offers a simple and efficient way to do so. The stock selection consists of European companies active in the construction and raw materials sectors. It is diversified across various European countries, with a focus on Switzerland and Germany. Stocks are added to the basket in equal weightings at the time of initial fixing.

In subscription until April 16, 2025.

Termsheet CHF (Valor 121 827 020)
Termsheet EUR (Valor 121 827 021)

Sources:
¹ 600 Milliarden Euro für eine zukunftsfähige Wirtschaft - Institut der deutschen Wirtschaft (IW)
² A European Public Investment Outlook - 3. Public Investment in Germany
³ Investing in Europe’s future: The case for a rethink
⁴ Mind the gap: Europe’s strategic investment needs and how to support them

 

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