Half of German businesses cite bureaucracy and regulation as the biggest problem facing Germany as a business location, a new report from the ifo Institute has found.
According to the July 2026 ifo Business Survey, other issues cited included energy costs (27%), labour costs (22%), a shortage of skilled workers (17%), the political environment (16%), taxes and levies (13%), and a lack of planning certainty (13%).
‘Red tape’
“Red tape has a dual impact – it ties up staff who are needed elsewhere, and it hampers investments, since they no longer make financial sense once the costs of approval and documentation are factored in,” commented Klaus Wohlrabe, head of surveys at ifo. “The second effect is more costly and it doesn’t show up in any statistics because the project never gets off the ground.”
According to the survey, business difficulties vary according to company size – bureaucracy was identified as a problem by 59% of large companies, 58% of medium-sized companies and 50% of small companies.
This fell to 41% among microenterprises with fewer than 10 employees and 33% among the self-employed, however.
“Any company that has employees, operates plants and facilities, and exports goods is subject to several sets of regulations simultaneously – from labour law to reporting obligations to data protection,” Wohlrabe added. “The self-employed and microenterprises are still exempt from many of these obligations. As soon as a business reaches a certain size, almost all of them apply at once.”
Sectoral differences
Differences were also evident on a sector-by-sector basis, the ifo Institute noted. Energy costs were cited by 39% of manufacturing companies, compared with 17% of service-sector companies. In construction, 29% of companies identified a shortage of skilled workers as a location-related problem, while 13% pointed to lengthy approval processes.
In trade, meanwhile, weak demand was the main concern, while 25% of companies cited the general economic and order situation – more than any other sector.
The findings are based on 4,449 responses from companies in manufacturing, construction, trade and services. Read more here.
