Germany is missing several key prerequisites to capitalize on the enormous growth potential driven by artificial intelligence. That is the central finding of an analysis conducted over recent months by the IFO Institute, commissioned by the Munich and Upper Bavaria Chambers of Industry and Commerce and carried out by the Leibniz Institute for Economic Research at the University of Munich.
Change Moves Far Faster Than Policy
The Munich and Upper Bavaria Chambers of Industry and Commerce had serious concerns about Germany’s ability to adapt to technological transformation. Those concerns were swiftly confirmed by the IFO research. According to the IFO Institute’s findings, the information and communications technology sector contributes just 4.6% of Germany’s gross value added, a strikingly low share for Europe’s largest economy.
“The high-tech industry is still too small in Germany. Digitalization of public administration has made some progress, but it remains insufficient, and the education system is not adapting quickly enough to the epochal changes introduced by artificial intelligence.”
Oliver Falck, director of the IFO Center for Economics of Innovation and Digital Transformation, stated this in the report, identifying the main areas of Germany’s lag. These are largely the same structural weaknesses found across most European countries. The ICT sector, currently the fastest-moving area of the global economy due to AI-driven progress, contributes a mere 4.6% of Germany’s gross value added, according to IFO Institute data, placing the country once celebrated as the “locomotive of Europe” in the lower-middle tier of EU digital transformation readiness rankings.
The trade data is equally sobering. In 2025, Germany imported $11 billion more in technology services than it exported, according to the IFO report. That deficit underscores a structural dependence rarely acknowledged in public debate.
“No other EU member state depends as heavily on foreign suppliers in the field of information and communications technology. Germany is far too tightly bound to imports in this area.”
Christian Pfaffl, an IFO Institute researcher who contributed to the report, underscored the import dependency, framing it as a strategic vulnerability that extends well beyond economics into geopolitical exposure.
Digitalization Progress Is Nearly Nonexistent
While some EU member states, including Italy, have funded digitalization projects through PNRR investments, Germany has neglected this dimension for far too long, as the IFO analysis makes clear. The lag is most visible in public administration. Over the past fifteen years, Germany has recorded negligible progress on e-government, despite this being precisely the domain where AI can deliver the most tangible improvements for businesses and citizens.
The large volumes of administrative data already held by German public bodies could, in principle, be fed into AI models to be reorganized and synthesized. Instead, Berlin remains in an experimental phase. Pre-filled forms are still largely unavailable, or entirely absent, in several German federal states. Neighboring countries including the Netherlands, Denmark, Poland, and Austria already have these solutions widely deployed.
Germany’s position here is symptomatic of a broader lag in the race to build AI infrastructure. That the most alarming digital gap in Europe comes from one of its wealthiest and most industrially advanced economies is, frankly, striking.
Skills Gap Compounds the Problem
A country that is digitally underdeveloped tends to produce citizens who are less comfortable with new technologies. German digital skills above the basic level sit noticeably below the EU average, according to the IFO report. The gap shows up early: 40% of eighth-grade students, roughly the equivalent of early secondary school, do not reach Level 2 in computer literacy and digital information management, according to IFO Institute data.
“AI applications are spreading rapidly, but too many people lack the knowledge needed to use them productively.”
Falck’s observation points to an endemic skills deficit that translates directly into a lower openness to technological change. The European Commission, through Commission President Ursula von der Leyen, has signaled its intention to scale up investment in technology across the bloc. If those commitments materialize into real funding, every EU member state, Germany included, could benefit from the uplift.
For Germany specifically, a coordinated EU push would provide meaningful momentum for a country that must close the gap or risk developing a deep dependency on either the United States or China for its core technology stack. That kind of dependency would carry direct consequences in foreign policy and strategic autonomy, two areas where Berlin can ill afford further exposure. The IFO report, commissioned by Bavaria’s own industrial chambers, makes clear that the diagnosis is no longer abstract: the data is in, and the window to act is narrowing.
